Front Matter
Author:
Mr. Joachim Harnack
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Mr. Sérgio Pereira. Leite
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Ms. Stefania Fabrizio
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Ms. Luisa Zanforlin
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Mr. Girma Begashaw
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Mr. Anthony J. Pellechio
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Abstract

This chapter explores the key relationships between participatory democracy and successful economic development and reviews the early steps of participatory decision making in Ghana. More generally, it sets the stage for a discussion of Ghana's main achievements and failures since 1992 in raising the standard of living of its population and reducing poverty. The high-profile political process that launched constitutional democracy in the 1990s and generated Ghana—Vision 2020 placed poverty reduction at the center of economic policy. Based on a set of price and unit labor cost indicators, Ghana's competitiveness improved in the early 1990s through 1994. The evidence for 1995–98 is quite strong. The Bank of Ghana is suspected to have used administrative means and moral suasion to influence the exchange rate, resisting the cedi's depreciation. The terms-of-trade shock forced the Bank of Ghana to focus more clearly on maintaining adequate foreign reserves. The depreciation may then have helped make the foreign exchange market more active and the nominal exchange rate more representative of market conditions.

© 2000 International Monetary Fund

Production: IMF Graphics Section

Figures: Lai Oy Louie

Typesetting: Alicia Etchebarne-Bourdin

Cataloging-in-Publication Data

Ghana: economic development in a democratic environment/Sérgio Pereira Leite…[et al.]–Washington, D.C.: International Monetary Fund, 2000.

  • p. cm. —(Occasional paper; ISSN 0251–6365; 199)

  • Includes bibliographical references.

  • ISBN 1–55775–960–X

1. Ghana—Economic conditions. 2. Finance—Ghana. I. Pereira Leite, Sérgio. II. Occasional paper (International Monetary Fund); no. 199.

HC1060.G4273 2000

338.9667–dc21

00—050608

Price: US$20.00

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Contents

  • Abbreviations Used

  • Preface

  • I Overview

    • Economic Development and Democracy

    • The Revolutionary Phase: 1981–91

    • The Democratic Phase: 1992 to the Present

    • The Paper in Brief

  • II Poverty Reduction Strategy

    • Institutional Structure for Reducing Poverty

    • Programs to Reduce Poverty

    • Poverty Monitoring and Indicators

    • Lessons and the Challenge Ahead

  • III Patterns of Growth

    • Sources of Output

    • Investment

    • Sources of Growth

  • IV Cocoa Reforms: An Experiment in Participatory Decision Making

    • Cocoa Trends in the Last Decade

    • Marketing Arrangements and Early Reforms

    • A Participatory Approach to Cocoa Reforms

    • Next Steps and Conclusions

  • V Fiscal Performance and Reforms

    • Fiscal Impact of the 1992 Election

    • Developments After the 1992 Election

    • Fiscal Impact of the 1996 Election

    • Developments After the 1996 Election

    • External Shock Ahead of the 2000 Elections

    • Conclusion

  • VI Coping with Painful Choices: Public Sector Reforms

    • Early Reform Efforts

    • Recent Reform Efforts

    • Lessons Learned and the Future of Public Sector Reform

  • VII Divestiture: Obstacles and Achievements

    • The Divestiture Implementation Committee and the Early Efforts

    • Recent Divestiture Experience: 1993–99

    • Summary and Conclusions

  • VIII Financial Sector Issues

    • The Banking System and Its Evolution

    • Structure of the Banking System

    • How Far Have the Reforms Gone?

    • Lessons Learned and Next Steps

  • IX External Competitiveness

    • Evolution of the Exchange Rate System

    • Traditional Competitiveness Indicators

    • Competitiveness Indicators for Ghana

    • Conclusions

  • X The Road to 2020

    • Main Elements of Ghana—Vision 2020

    • Results of the First Phase

    • Reformulation of Ghana—Vision 2020

    • Lessons Learned

  • References

  • Boxes

    • 2.1. Program of Action to Mitigate the Social Costs of Adjustment (PAMSCAD)

    • 3.1. Growth of Nontraditional Exports, 1986–98

    • 4.1. The Medium-Term Cocoa Development Strategy

    • 4.2. Cocoa Export and Tax Revenue

    • 5.1. The Medium-Term Expenditure Framework

    • 6.1. Decentralization Efforts

    • 6.2. The Public Sector Reinvention and Modernization Strategy

    • 7.1. Divestiture Procedures

    • 7.2. The Ghana National Petroleum Corporation

    • 7.3. Divestiture of Strategic Companies

    • 8.1. The A-life Fraud

    • 8.2. Rural Finance in Ghana

    • 8.3. The Social Security and National Insurance Trust

    • 9.1. Exchange Rate Arrangements, 1983–97

  • Tables

    • 2.1. Incidence of Poverty by Region

    • 3.1. Gross Domestic Product by Sector

    • 3.2. Comparison of Ghana with Other Leading Agricultural Countries in Sub-Saharan Africa

    • 3.3. Comparison of Ghana with Other Leading Manufacturing Countries in Sub-Saharan Africa

    • 3.4. Gross Domestic Product by Expenditure Category

    • 3.5. Comparison of Ghana with Leading Countries in Sub-Saharan Africa by Investment-GDP Ratio

    • 3.6. Comparison of Ghana with Leading Countries in Sub-Saharan Africa by Productivity of Capital

    • 4.1. Distribution of Proceeds of Cocoa Exports in Selected Cocoa-Producing Countries

    • 5.1. Central Government Revenue and Grants

    • 5.2. Central Government Expenditure

    • 5.3. Economic Classification of Central Government Expenditure and Net Lending

    • 5.4. Central Government Budgetary Operations and Financing

    • 7.1. Divestiture of State Enterprises

    • 7.2. Selected Divestitures Outside the DIC Framework

    • 8.1. Chronology of the Banking System

    • 8.2. Indicators of the Size and Concentration of the Banking Sector

    • 8.3. Selected Banking System Indicators as of December 1998

    • 8.4. Selected Banking System Indicators as of December 1999

  • Figures

    • 2.1. Poverty Gap by Region

    • 2.2. Incidence of Poverty by Main Economic Activity of Household

    • 3.1. Real GDP per Capita and Inflation Across Political Regimes

    • 3.2. Saving, Investment, and the Current Account

    • 3.3. GDP Per Capita and Exports Per Capita

    • 3.4. Agricultural Sector and Real GDP

    • 4.1. World Cocoa Production and Yields

    • 4.2. World Market Shares in Cocoa Production

    • 4.3. Cocoa Prices Received by Ghana and Côte d’Ivoire

    • 4.4. Distribution of Cocoa Export Revenue in Ghana and Côte d’Ivoire

    • 5.1. Central Government Finances

    • 7.1. State Enterprise Divestitures

    • 7.2. Divestiture Proceeds

    • 8.1. Financial Deepening Ratios

    • 9.1. Real Effective Exchange Rates

    • 9.2. Real Effective Exchange Rates Based on Unit Labor Cost Indices

    • 9.3. External Competitiveness of Ghana and Four Neighboring Countries

The following symbols have been used throughout this paper:

  • … to indicate that data are not available; n.a. to indicate not applicable;

  • — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;

  • – between years or months (e.g., 1998–99 or January-June) to indicate the years or months covered, including the beginning and ending years or months;

  • / between years (e.g.. 1998/99) to indicate a crop or fiscal (financial) year.

“Billion” means a thousand million.

Minor discrepancies between constituent figures and totals are due to rounding.

The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not States, but for which statistical data are maintained and provided internationally on a separate and independent basis.

Abbreviations Used

ADB

Agricultural Development Bank

BHC

Bank for Housing and Construction

BPEMS

Budget and Public Expenditure Management System

CPI

Consumer Price Index

CWIQ

Core Welfare Indicators Questionnaire

DACF

District Assemblies Common Fund

DIC

Divestiture Implementation Committee

ERP

Economic Reform Program

GCB

Ghana Commercial Bank

GLSS

Ghana Living Standards Survey

GNPC

Ghana National Petroleum Corporation

GUSS

Ghana Universal Salary Structure

IMCPR

Inter-Ministerial Committee on Poverty Reduction

IPPD

Integrated Personnel and Payroll Database

NCD

National Commission for Democracy

NDPC

National Development Planning Commission

NIB

National Investment Bank

NIRP

National Institutional Renewal Program

NOC

National Oversight Committee

NPRP

National Poverty Reduction Program

NGO

nongovernmental organization

PAMSCAD

Program of Action to Mitigate the Social Costs of Adjustment

PBC

Produce Buying Company

PSAC

Private Sector Adjustment Credit

PUFMARP

Public Financial Management Reform Program

PUSERMOS

Public Sector Reinvention and Modernization Strategy

REER

real effective exchange rate

SAPRI

Structural Adjustment Participatory Review Initiative

SDR

special drawing right

SEC

State Enterprise Commission

SIF

Social Investment Fund

SSNIT

Social Security and National Insurance Trust

TCOP

Technical Committee on Poverty

TWG-PR

Thematic Group on Poverty Reduction

UNDP

United Nations Development Programme

VAT

value-added tax

Preface

This occasional paper is based on staff background papers prepared for the 1998 and 1999 consultations between the International Monetary Fund and Ghana. The information in this occasional paper primarily pertains to the period since Ghana’s return to multiparty democracy in 1992 through December 1999. The authors would like to acknowledge the support and encouragement of the Ghanaian authorities and the IMF Executive Director for Ghana, Abbas Miraihor. The paper was prepared by a staff team led by Sérgio Pereira Leite and Anthony Pellechio and composed of Girma Begashaw, Stefania Fabrizio, Joachim Harnack, and Luisa Zanforlin. The authors would like to acknowledge the contributions of Andrew Mvumbe, T. Kanai, Ritha Khemani, Périn Saint-Ange, and Dev Kar, as well as the comments of Paul Acquah, Rocio Castro, GuenterHeidenhof, and Amor Tahari and the research assistance of Luca Bandiera. They would like to thank Maureen Burke and John Maynard for invaluable assistance.

The opinions expressed in the paper are those of the authors and should not be construed as necessarily representing the views of the Government of Ghana or the International Monetary Fund.

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