Building the Foundations for a Resilient and Equitable Fiscal Policy PUBLIC FINANCE REVIEW VOL. 1 / OVERVIEW GHANA DECEMBER 2024 GHANA PUBLIC FINANCE REVIEW Building the Foundations for a Resilient and Equitable Fiscal Policy VOL. 1 / OVERVIEW DECEMBER 2024 ii © 2024 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution—Please cite the work as follows: “World Bank. 2024. Ghana Public Finance Review: Building the Foundations for a Resilient and Equitable Fiscal Policy Volume 1 – Overview. World Bank, Washington, DC.” All queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202- 522-2625; e-mail: pubrights@worldbank.org. iii Contents Acknowledgment v Abbreviations and Acronyms vii 0 Overview 1 0.1 Ghana’s fast GDP growth, fueled by debt accumulation, left it highly vulnerable 2 to global shocks 0.2 Stronger domestic revenue mobilization can create fiscal space 6 0.3 Public expenditure, fast-growing and burdened by interest payments on debt, 10 falls short on spending efficiency 0.4 Lackluster public financial management has undermined fiscal policy 14 effectiveness 0.5 The public sector wage bill, large and unpredictable, fails to provide the civil 19 service Ghana needs 0.6 Human development spending must rise but with stronger pro-poor allocation 22 across subsectors and programs 0.7 Agriculture, critical for rural Ghanaian livelihoods and for export earnings, 26 could greatly benefit from more efficient and better targeted government support 0.8 Policy recommendations: To implement a fair and sustainable adjustment, 30 Ghana needs to shift from short-term crisis response to long-term structural reforms References 40 iv List of Boxes Box 0.1. Building institutions for fiscal discipline: The case of Jamaica 5 Box 0.2. Sustainably improving revenue mobilization: lessons from country experience 9 Box 0.3. Improving cash management and commitment controls: The case of Kenya 17 Box 0.4. Strengthening PFM and accountability through technology: The case of Estonia 18 List of Figures Figure 0.1. GDP per capita (PPP 2017, international dollar), Ghana and SSA 3 Figure 0.2. Central Government - Gross debt (% GDP) 3 Figure 0.3. Benchmarking Ghana’s tax revenue performance against countries with 7 similar levels of GDP per capita and trade, by total and individual tax Figure 0.4. Government spending by economic category, 2010–2023, ₵ billions (constant, 11 2010) Figure 0.5. Level of education gains from partial improvements in spending efficiency, 12 Ghana and comparators (scale of 100) Figure 0.6. Infrastructure quality gains from partial improvements in spending efficiency, 12 by infrastructure type (scale of 100) Figure 0.7. Total expenditure (₵, millions) 15 Figure 0.8. Total revenue and grants (₵, millions) 15 Figure 0.9. Wage bill, Ghana and comparator groups (% of GDP), 2000–2020 20 Figure 0.10. Individuals with tertiary education, by public and private sector (% of total) 20 Figure 0.11. Economic composition of central government agricultural 27 expenditures—2019–2022 List of Table Table 0.1. Summary of Key Policy Recommendations 35 v Acknowledgment The Ghana Public Finance Review was prepared at the request of the Ministry of Finance of Ghana, in close collaboration with various other line ministries, departments, and agencies. This review provides an in-depth analysis of the efficiency, equity, and impact of public revenue and expenditure, aimed at informing Ghana’s fiscal consolidation efforts as the country seeks to recover from successive and overlapping crises. The team extends its gratitude to the government and technical teams for their cooperation and collaboration. The report particularly benefited from exchanges with the authorities at different stages of its preparation. This Public Finance Review was prepared by a core World Bank team consisting of David Elmaleh (Senior Economist, Task Team Leader), Stefano Curto (Lead Economist and Program Leader, Co-Task Team Leader), Raymond Muhula (Lead Public Sector Specialist, Co-Task Team Leader), Tamoya Christie (Senior Economist, Co-Task Team Leader), Patrick Mullen (Human Development Program Leader), Anna Twum (Economist), and Kwabena Kwakye (Economist). Chapter 1 was prepared by Juan Pablo Paladino (Consultant) and David Elmaleh, with inputs from Juan Pradelli (Consultant), Fernando Blanco (Lead Economist), Paul Corral Rodas (Senior Economist), and Kwabena Kwakye. Chapter 2 was prepared by Elijah Gatuanjau Kimani (Economist) and Moses Misach Kajubi (Senior Public Sector Specialist), with inputs from Grzegorz Poniatowski (Consultant), Theo Braimah Awanzam (Consultant) and Paul Corral Rodas. Chapter 3 was prepared by Anna Twum, John Nana Darko Francois (Economist), and Francisco Vazquez Ahued (Consultant), with inputs from Kwabena Kwakye and David Elmaleh. Chapter 4 was prepared by Tatsuya Iwasaki (Public Sector Specialist) and Raymond Muhula, with inputs from Smile Kwawukume (Senior Public Sector Specialist) and Fabienne Mroczka (Senior vi Public Sector Specialist). Chapter 5 was prepared by Muhammad Faisal Ali Baig (Public Sector Specialist) and Margherita Fornasari (Consultant). Chapter 6 was prepared by Patrick Mullen, Ali Hasan Ansari (Senior Economist), Eunice Yaa Brimfah Ackwerh (Senior Education Specialist), Ama Koma Blankson Anaman (Education Specialist), Owen Smith (Lead Economist), Enoch Oti Agyekum (Health Economist), Dorothee Chen (Senior Health Specialist), Elisha Ngetich (Health Economist), Christabel E. Dadzie (Senior Social Protection Specialist), Cornelia M. Tesliuc (Lead Economist), Cynthia Nimo Ampredu (Social Protection Specialist), and Leila Fall (United Nations Volunteer). Chapter 7 was prepared by Onasis Tharcisse Adetumi Guedegbe (Young Professional) and Ashwini Rekha Sebastian (Senior Agriculture Economist) with guidance from Abel Lufafa (Practice Manager, AGF). Overall guidance and comments were provided by Abebe Adugna (Regional Director), Sandeep Mahajan (Practice Manager, MTI), Tracey Marie Lane (Practice Manager, GOV), Robert Taliercio (Country Director), Michelle Keane (Manager, Operations), Aurelien Kruse (Lead Economist), Dhruva Sahai (Senior Energy Specialist, Program Leader), Carlos Leonardo Vicente (Lead Financial Sector Economist), and Maame Tabuah Ankoh (Senior Energy Specialist). Colleagues in Accra and Washington, DC, including Gregoria Dawson-Amoah (Senior Program Assistant), Irene Sitienei (Program Assistant), Pinar Baydar (Operations Analyst), Ifeoma Clementina Ikenye (Team Assistant), Elizabeth Naa Amoah Akushey (Senior Executive Assistant), Stephen Tettevi (Program Assistant), and Kennedy Fosu (External Affairs Officer), facilitated the research process, coordinated mission travel, and supported the preparation and dissemination of the report at different stages. The report was edited by Marcello Arrigo and Erika Jorgensen. Vito Raimondi designed the report. The team thanks Florian Blum (Senior Economist), Jana Kunicova (Lead Public Sector Specialist), Maria Eugenia Bonilla-Chacin (Program Leader), and Timothy Williamson (Sr. Public Sector Specialist) who acted as peer reviewers for this report. vii Abbreviations and Acronyms API Application Programming Interface CAD Current Account Deficit CAGD Controller and Accountant-General’s Department CIT Corporate Income Tax COCOBOD Ghana Cocoa Board CSA Climate-Smart Agriculture CSO Civil Society Organization DRM Domestic Revenue Mobilization DSA Debt Sustainability Analysis ECF Extended Credit Facility ECG Electricity Company of Ghana ESRP Energy Sector Reform Program EPOC Economic Programme Oversight Committee GDP Gross Domestic Product GIFMIS Ghana Integrated Financial Management Information System GNHR Ghana National Household Registry GPE Global Partnership for Education GRA Ghana Revenue Authority GSFP Ghana School Feeding Program HIPC Heavily Indebted Poor Countries HR Human Resource ICT Information and Communication Technology IFMIS Integrated Financial Management Information System IGF Internally Generated Fund IMF International Monetary Fund IPP Independent Power Producer viii ITAS Integrated Tax Administration System LEAP Livelihood Empowerment Against Poverty LIPW Labor-Intensive Public Works LMIC Lower-Middle-Income Country MDAs Ministries, Departments, and Agencies MoF Ministry of Finance MoFA Ministry of Food and Agriculture MoH Ministry of Health MTDS Medium-Term Debt Strategy MTEF Medium-Term Expenditure Framework MTRS Medium-Term Revenue Strategy NHIF National Health Fund NHIL National Health Insurance Levy NHIS National Health Insurance Scheme PAYE Pay-As-You-Earn PBB Programme-Based Budgeting PFJ Planting for Food and Jobs PFM Public Financial Management PIM Public Investment Management PIT Personal Income Tax PPP Purchasing Power Parity PV Photovoltaic R&D Research and Development SSNIT Social Security National Income Trust SSA Sub-Saharan Africa TADAT Tax Administration Diagnostic Assessment Tool TSA Treasury Single Account VAT Value Added Tax WEO World Economic Outlook WWBI World Bank Worldwide Bureaucracy Indicators 0 / Overview Ghana Public Finance Review | Building the Foundations for a Resilient and Equitable Fiscal Policy Ghana Public Finance Review | Volume 1 / Overview 2 0.1/ Ghana’s fast GDP growth, fueled by debt accumulation, left it highly vulnerable to global shocks Ghana’s progress on poverty reduction and inclusive growth has suffered recent setbacks Ghana’s development path, although registering past successes, faces a series of current and future challenges. Ghana succeeded in halving its poverty rate between 1991 and 2016, from 87 percent (US$3.65 per day in 2017 purchasing power parity [PPP]) to about 50 percent of the population, outpacing progress across Sub-Saharan Africa (SSA), along with improvements in health and education indicators. However, recent global crises have pushed poverty upward, as the country faces multiple challenges. Ghana needs to provide more and better jobs and foster inclusive productivity growth, especially through investments in human capital. At the same time, the country’s growth path is increasingly vulnerable to climate change and climate-related shocks. Tackling these challenges will require fiscal policy to promote macroeconomic stability, create the right incentives, and generate the necessary public investments. Ghana experienced strong growth before the COVID-19 shock, but at the cost of mounting macroeconomic imbalances Starting in 2009, Ghana experienced a growth acceleration driven by oil production. An expansionary fiscal policy and rising private credit—both enabled by soaring oil production—underpinned strong growth between 2008 and 2019. Over the period, Ghana’s economy expanded by about 6.8 percent per year—versus regional and global averages of 4.4 percent and 2.7 percent, respectively. By 2019, gross domestic product (GDP) per capita in 2017 PPP dollars had reached US$5,540—a level 65 percent higher than in 2007 and 33 percent higher than the regional average (Figure 0.1). Ghana Public Finance Review | Volume 1 / Overview 3 Ghana’s per capita GDP rose above the SSA average over the Following heavily indebted poor countries (HIPC) debt relief, last decade Ghana’s debt burden rose again as the oil boom began Figure 0.1. GDP per capita (PPP 2017, international dollar), Ghana Figure 0.2. Central Government - Gross debt (% GDP) and SSA 100.0 6,000 90.0 5,500 80.0 5,000 70.0 4,500 60.0 4,000 50.0 3,500 40.0 3,000 30.0 2,500 20.0 2,000 10.0 0.0 90 93 96 99 02 05 08 11 14 17 20 19 19 19 19 20 20 20 20 20 20 20 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Ghana Sub-Saharan Africa Source: International Monetary Fund (IMF), World Economic Outlook Source: IMF WEO, 2000–2019; Debt Sustainability Analysis (DSA), (WEO) (October 2023). 2020–2023. Note: 2023 public debt presents a post-domestic debt restructuring/ pre-external debt restructuring scenario. However, this growth acceleration The lack of fiscal discipline was sustained by increasing fiscal and was marked by weak budgetary external imbalances, which fueled debt institutions, high fiscal liabilities from accumulation. The total fiscal deficit the financial and energy sectors, and averaged around 4 percent of GDP between insufficient revenue collection 2008 and 2019—more than twice as much as in 2000–2007—while total expenditures The fiscal system’s weak expenditure averaged 19 percent of GDP—6 percentage controls enabled a vicious circle points higher than in 2000–2007. Although leading to reduced fiscal space and public debt had been substantially reduced unsustainable debt accumulation. through HIPC relief during 2002–2004, Ineffective spending controls, frequent it returned to an upward trajectory in budget overruns (notably on the wage bill), the decade to 2019, driven by fast-rising and inadequate procurement practices external commercial debt (notably contributed to increasing deficits. These Eurobonds). By 2019, public debt had deficits were financed from expensive reached 60 percent of GDP, split equally borrowing on international capital markets, between domestic and external liabilities which pushed up debt service. This, in turn, (Figure 0.2). Annual interest payments put additional pressure on fiscal space, almost quadrupled as a share of GDP, from necessitating further borrowing. 1.4 percent in 2007 to 5.5 percent in 2019. Ghana Public Finance Review | Volume 1 / Overview 4 A costly clean-up of the financial sector in response to the COVID-19 crisis, reaching and ongoing losses in the energy sector 14.7 percent of GDP in 2020, 12.1 percent increased fiscal pressures. An expensive in 2021, and 11.8 percent in 2022. Ghana restructuring of the financial services sector continued to tap international markets for weighed on expenditures, costing the financing until 2021, leading to inflationary equivalent of 8.3 percent of the cumulative pressures. Additional external pressures— GDP between 2017 and 2021. The chronic from supply chain disruptions, rising shortfalls in the energy sector have resulted commodity prices, and monetary policy from high fuel costs and expensive take-or- tightening in advanced economies—pushed pay contracts combined with distribution Ghana into a macroeconomic crisis. Public losses, poor revenue collection, and below- debt skyrocketed to 93 percent of GDP cost-recovery tariffs. Since 2019, the power in 2022, as fiscal balances deteriorated sector has cost the government an average while growth slowed markedly. Ghana lost 1.7 percent of GDP to balance electricity access to international capital markets and costs and revenues, but the annual revenue struggled to roll over domestic debt, so the shortfall for the power sector in 2023 was authorities began tapping into international estimated at 2.8 percent of GDP. reserves to finance current account deficits (CADs) and resorted to monetary financing The fiscal situation was further weakened from the central bank. by declining tax revenue in the years preceding the crisis. Collected revenues Ghana is tackling the severe as a share of GDP fell from 15.7 percent in macroeconomic imbalances that peaked 2017 to 12.9 percent in 2019, as collections in 2022 and has made steady progress from most major taxes declined, including a toward economic stabilization. In persistent fall in revenue from income taxes 2023, Ghana negotiated a three-year IMF- and value added taxes (VATs). In addition, supported Extended Credit Facility (ECF) the period was marked by an increase in tax program. The government has taken decisive earmarking to statutory funds, squeezing the action, including acceleration of the fiscal funds available for general spending. adjustment process and sustained progress on comprehensive debt restructuring. The A prolonged and expensive fiscal fiscal position is projected to gradually response to the COVID-19 and improve, reaching a primary surplus of 1.5 repeated global shocks plunged Ghana percent of GDP from 2025 onward. into a full-fledged crisis in 2022 from which it is now emerging The right set of fiscal rules and institutions could help curb spending Pandemic-related spending pressures pro-cyclicality and strengthen debt combined with a deteriorating and sustainability. Ghana’s recent fiscal rule unstable international economic framework has been suspended since environment pushed Ghana into debt the beginning of the COVID-19 pandemic. distress in 2022. Ghana entered the Fiscal rules have been used successfully to COVID-19 pandemic already running promote debt sustainability, create a more unsustainable deficits and enacted a strong predictable fiscal policy framework, and build fiscal response. Fiscal deficits skyrocketed buffers against adverse macroeconomic Ghana Public Finance Review | Volume 1 / Overview 5 shocks (Box 0.1). Policy makers should specific macro-fiscal risks linked to external consider a combination of an expenditure borrowing, the fiscal rule design could and a debt rule (with well-defined escape consider including a capping mechanism. clauses), with potential to foster debt Finally, the authorities should review the sustainability and reduce the pro-cyclicality of fiscal council framework to strengthen its government spending. In addition, given the independence and clarify its mandate. Box 0.1. Building institutions for fiscal discipline: The case of Jamaica Following its 2013 debt crisis, Jamaica achieved fiscal discipline, bringing public debt to manageable levels, with a greatly improved primary balance. Its success was possible owing to two key elements. (1) A fit-for-purpose set of fiscal rules with a Fiscal Responsibility Framework that set fiscal rules focused on debt accumulation, a medium-term plan, and ambitious fiscal deficit and debt stock targets. It included well-designed escape clauses, balancing transparency and flexibility. (2) Various institutional agreements which gave confidence that the burden of the adjustment would be shared fairly. A social collaboration known as the Economic Programme Oversight Committee (EPOC) included participants from government, the private sector, and civil society organizations (CSOs). Acting as the fiscal council, the committee was provided with data by the government to evaluate the nation’s fiscal achievements against set objectives. Sources: Serkan, Eichengreen, and Henry 2024; World Bank 2022. Ghana Public Finance Review | Volume 1 / Overview 6 0.2/ Stronger domestic revenue mobilization can create fiscal space Ghana’s recent revenue performance lags peers and has been deteriorating Ghana’s domestic revenue mobilization (DRM) has declined in recent years and remains below structural peers. Collected revenues as a share of GDP declined from 15.7 percent in 2017 to 13 percent in 2021. Except for turnover and excise taxes, collection from all major taxes declined. In particular, the persistent fall in revenue from income taxes and VAT stood in direct contrast with the trends observed in peer countries. Average tax collection stood at 13.2 percent of GDP between 2017 and 2021—8 percentage points short of the country’s estimated tax capacity (21.2 percent of GDP as of 2022) and below the SSA average (Figure 0.3). This report discusses instruments and topics which lacked in-depth analysis: personal income taxes (PITs) and tax expenditures oversight. Reforms to indirect taxes, primarily VAT, also hold great promise in augmenting Ghana’s revenues and have been comprehensively analyzed elsewhere. VAT reforms are covered in this study under tax expenditures as a significant share of domestic consumption is VAT exempt. Tax administration has been covered in the 2023 Tax Administration Diagnostic Assessment Tool (TADAT) report that provides detailed recommendations. Ghana Public Finance Review | Volume 1 / Overview 7 Ghana’s tax collection falls slightly below that of comparators although not for all taxes Figure 0.3. Benchmarking Ghana’s tax revenue performance against countries with similar levels of GDP per capita and trade, by total and individual tax Source: World Bank Revenue Dashboard. For PIT, a focus of this analysis, Earn (PAYE) scheme. Ghana’s PIT system numerous exemptions and the is progressive, with a seven-band rate complexity of the PIT system have a structure, but a range of exemptions shrink detrimental impact on compliance the already narrow tax base even further, and revenues. PIT accounts for about 15 particularly the exemption of retirement percent of Ghana’s total tax revenues and funds. Finally, tax complexity and insufficient 2 percent of GDP, below the SSA average of enforcement efforts contribute to poor 18 percent of revenues and 3.5 percent of compliance. GDP. PIT revenue has failed to keep up with GDP growth, and the system is overly reliant Other taxes’ contribution to overall on payroll taxes (more than 99 percent of revenues has also been dropping, partly total proceeds), and in 2022, fewer than because of exemptions. VAT’s share of 25 percent of Ghanaians of voting age Ghana’s total tax revenues fell from 34 paid payroll taxes under the Pay-As-You- percent in 2015 to 17 percent in 2021, in Ghana Public Finance Review | Volume 1 / Overview 8 contrast with global trends, partly due to a lowers the effective tax rate, and fosters a cut to the standard VAT rate in 2018, which misallocation of resources as businesses was reversed in 2023. The VAT rate is now engage in aggressive tax planning. broadly in line with that of regional peers, but additional levies are imposed for certain The fiscal cost of tax expenditures items while others (agricultural products calls for rationalization while and inputs, water and electricity supply, and mitigating negative welfare impacts domestic passenger transport) benefit from exemptions. Revenue from excise duties With an estimated cost of 3.9 percent of is about 1.8 percent of GDP, below the 2.1 GDP, Ghana’s tax exemptions from VAT, percent average across low-income countries PIT, and import duties offer fiscal relief and at the lower end of the SSA region. but create complexity and distortions. More than 90 percent of Ghana’s excise tax The Tax Exemptions Act, 2022, sets out clear revenues derive from petroleum products, criteria and guidelines, but other pieces of through the energy fund, sanitation and legislation set out further tax incentives that pollution levy, fuel emission levy, road fund deviate from the notional tax benchmark. levies among others. The absence of a robust The fiscal cost of VAT tax exemptions in track-and-trace system and factory-gate flow 2021 is estimated at 1.9 percent of GDP, or meters likely contributes to noncompliance. more than 72 percent of actual VAT revenue, Last, Ghana’s corporate income tax (CIT) with the single largest source of forgone revenue performance improved over revenue being the VAT exemption on the the past decade, averaging 2.2 percent supply of dwellings and land (33 percent of of GDP during 2015–2021, although still overall cost). Tax exemptions from PIT are below regional and structural peers and estimated to have cost 1.4 percent of GDP significantly less than in the best-performing in 2021 or about 62 percent of PIT revenues. SSA countries. The statutory CIT rate of 25 The PIT exemption for cocoa farmers had the percent is lower than in key structural peers, deepest impact on revenue (0.42 percent of while a complex regime of 22 reduced CIT GDP), followed by deductions for pension/ rates complicates the administration of taxes, social security contributions (0.37 percent Credits: World Bank Ghana Public Finance Review | Volume 1 / Overview 9 of GDP), and those for provident fund suggest appropriate mitigating efforts. For contributions (0.36 percent of GDP). The example, removing the VAT exemption on fiscal cost of import duty exemptions in 2022 the supply of locally produced foodstuffs is estimated at 0.2 percent of GDP, or about and locally raised live animals could reduce 21 percent of actual revenues that year, and demand, harming smallholder farmers. the most expensive were those granted by In contrast, removing the VAT exemption Parliament to specific taxpayers, whose value on the supply of land and dwellings would reached 0.14 percent of GDP. likely have a minimal impact on poverty as it would apply disproportionately to richer Rationalizing tax expenditures requires households. Eliminating the PIT exemption striking a balance between revenue for cocoa farmers could be disruptive in growth and social costs, with the isolation but would enable the introduction following priorities: VAT on lands of more targeted instruments to mitigate and dwellings and PIT exemptions welfare losses among key beneficiaries. PIT for cocoa farmers (with adequate exemptions on pension contributions could mitigation measures) and on pension be rationalized without exacerbating poverty. contributions. Policy makers should Box 0.2 summarizes lessons from successful first assess the impact of exemption revenue mobilization reform episodes. removals on poverty—and, if needed, Box 0.2. Sustainably improving revenue mobilization: lessons from country experience The following are some lessons from successful revenue mobilization in Mauritania, Rwanda, The Gambia, and Uganda: “ The identified cases conducted both tax administration and tax policy reforms as a package. All four countries mainly focused on indirect tax (VAT and excise) reforms and reduction of tax exemptions as an effective revenue booster. Tax administration reforms mainly focused on improving compliance “ through strengthening taxpayer segmentation and automation. High-level political commitment and buy-in from key stakeholders played a critical role for reform success. Source: Il Jung 2023. Ghana Public Finance Review | Volume 1 / Overview 10 0.3/ Public expenditure, fast-growing and burdened by interest payments on debt, falls short on spending efficiency A lack of budget discipline since 2010 has resulted in booming public spending marked by volatility, high interest payments, and mounting rigidities Overall spending has risen sharply while non-discretionary spending has severely limited the fiscal space. Government expenditure in Ghana nearly doubled between 2010 and 2022, surpassing the pace of economic growth and reaching unprecedented levels. Overspending during election years, contingent expenses in the financial and energy sectors, and efforts to address the COVID-19 pandemic all boosted spending (Figure 0.4). Public spending has displayed volatility and lacked effective targeting, with insufficient investments in infrastructure and social development. From 2010 to 2023, 70 percent of total expenditure (15.8 percent of GDP on average) was dedicated to three spending items: public sector wages, interest payments, and earmarked transfers to statutory funds. Accounting for nearly 100 percent of total annual revenues, this rigid allocation hindered the agility and responsiveness of fiscal policy. In 2023, the economic adjustment program and a moratorium on debt service have helped put spending on a declining trajectory. Ghana Public Finance Review | Volume 1 / Overview 11 Government spending almost doubled during 2010–2023 as interest payments ballooned Figure 0.4. Government spending by economic category, 2010–2023, ₵ billions (constant, 2010) 50 45 40 35 30 Subsidies, transfers and other 25 Billions Capital expenditure 20 15 Compensation 10 5 Interest payments Goods and services 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Ministry of Finance (MoF) Ghana, World Bank calculations. As Ghana’s borrowing became same period versus close to 20 percent of more expensive, a growing interest total spending and 5 percent of GDP across burden started crowding out capital LMICs and the SSA region. As a result, expenditures. Between 2010 and 2021, public investment in infrastructure has Ghana spent two to four times more on been insufficient, especially since capital interest payments than key comparators, spending often undershoots budgeted highlighting a growing debt service burden to levels, revealing systemic issues around bilateral and commercial creditors. Spending public investment management (PIM). Key on public sector salaries and benefits—33 infrastructure bottlenecks have emerged, percent of total spending and 7 percent of including depreciated power distribution GDP, on average—was broadly in line with and transmission assets and limited road the levels recorded in lower-middle-income connectivity in the northern regions of the countries (LMICs) and the SSA region, as well country. as in aspirational and structural peers, but wages remain the largest single expenditure item and a frequent source of budgetary overruns. At the same time, high debt service crowded out capital expenditures, which averaged around 16 percent of total spending and 3.5 percent of GDP over the Ghana Public Finance Review | Volume 1 / Overview 12 Benchmarking spending efficiency for level of education,1 indicating potential indicates that Ghana could achieve for better outcomes with the current more with its current spending level of public spending. Even partial improvements in efficiency of education In a difficult macro-fiscal environment, public spending could significantly boost it is critical to maximize the efficiency outcomes (Figure 0.5). Similarly, Ghana’s of public spending in areas critical to public spending on infrastructure is far growth and inclusion, such as education from the efficiency frontier, and significant services and infrastructure. Overall, gains in infrastructure quality, especially in Ghana outperforms its structural peers roads and electricity, could be attained by on efficiency of public spending, although partial improvements in spending efficiency it lags aspirational peers. However, the (Figure 0.6). country is far from the efficiency frontier Even partial improvements in spending efficiency could lead to significant progress in education levels and infrastructure quality Figure 0.5. Level of education gains from partial improvements in Figure 0.6. Infrastructure quality gains from partial improvements spending efficiency, Ghana and comparators (scale of 100) in spending efficiency, by infrastructure type (scale of 100) 80 100 90 70 Infrastructure Quality Index (0: Lowest, 100: Highest) 80 - 100 (Highest)) 60 70 50 60 40 50 Level of Education (0 ()Lowest) 30 40 30 20 20 10 10 0 0 e Se es te oon o G a m ia la m Et re y a Vi ia y Tu l y y r ga i lit Ph occ G han lit op Ca od a tu lit lit s na in oi m ni ua ua ne ua ua Cô er uc pp Iv hi b et or te Q d’ m Q r Q Q ili M ua st Ca rt ity ad il ra po Ra ric f Ro In ns ct l a al e Tr El r ve O Potential Partial Gains in Level of Education Potential Full Gains in Infrastructure Quality Actual Level of Education Actual Infrastructure Score (Average: 2017-2019) Source: World Bank calculations. Note: For education, an increase in Ghana’s efficiency score from 0.67 to 0.84 would deliver 13.3 percentage points in its level of education. For infrastructure, an increase in efficiency to match the score of the 90th percentile of developing countries would deliver 11.4 percentage point improvement in the quality of Ghana’s electricity supply. 1 A measure of education (WEF) assessing the general skills level of the workforce and the quantity and quality of education; it includes quality factors such as digital literacy, interpersonal skills, and critical and creative thinking. Ghana Public Finance Review | Volume 1 / Overview Credits: World Bank 13 Ghana Public Finance Review | Volume 1 / Overview 14 0.4/ Lackluster public financial management has undermined fiscal policy effectiveness Major elements of public financial management (PFM) are in place, but implementation is incomplete Ghana’s PFM reforms, including the enactment of the PFM Act, 2016, and the ongoing PFM Strategy 2022–2026, have yielded some success, but major challenges remain. Notably, (a) the budget preparation schedule routinely suffers significant delays; (b) indicative budget ceilings are often ignored when determining final expenditure allocations; (c) the Medium-Term Expenditure Framework (MTEF) and Program-Based Budgeting (PBB) estimates are not comprehensive or reliable, and (d) relevant IT systems are highly fragmented and often duplicative, hindering inter-institutional collaboration and efficiency. Despite a relatively well-established process, the MTEF does not currently inform the medium-term budget. The out-year estimates of ministries, departments, and agencies (MDAs) are not binding and not always used as starting points for the development of the following year’s MTEF and budget. Due to this disconnect, MDAs have policies and plans that are not adequately costed or projects that are pipelined but not financially accounted for. As a result, the government is exposed to potential future liabilities that are not factored into medium-term Ghana Public Finance Review | Volume 1 / Overview 15 projections. Moreover, PBB performance information neither determines nor influences the actual allocation of resources, and the relevant outcome indicators and targets have significant shortcomings that limit their usefulness. Budget credibility is low, with revenue and expenditure outturns persistently off target. Revenue projections have consistently been overly optimistic (especially for domestic sources such as tax revenue, social contributions, and non-tax revenue), while expenditure and commitment controls have been ineffective. Moreover, budgetary allocations to MDAs are subject to institutional bargaining over which the public has little visibility, and actual allocations routinely deviate from the indicative ceilings initially assigned to each MDA by the MoF. Actual expenditure and revenues can deviate significantly from budgeted amounts Figure 0.7. Total expenditure (₵, millions) Figure 0.8. Total revenue and grants (₵, millions) 250,000 20% 120,000 0% -2% 15% 100,000 200,000 -4% 10% -6% 80,000 150,000 -8% 5% 60,000 -10% 0% 100,000 -12% 40,000 -5% -14% 50,000 -16% -10% 20,000 -18% 0 -15% 0 -20% 2016 2017 2018 2019 2020 2021 2022 2023 2016 2017 2018 2019 2020 2021 2022 Total Expenditure: Budget Total Revenue & Grants: Budget Total Expenditure: Outturn Total Revenue & Grants: Outturn Deviation (RHS) Deviation (RHS) Source: Budget Statements (2017–2024), Government of Ghana. Ghana Public Finance Review | Volume 1 / Overview 16 Substantial spending through statutory Recent fiscal pressures have shed funds and tax earmarking further light on PFM weaknesses related to constrains budgetary flexibility and expenditure commitment controls transparency. Spending through statutory and cash management and led to funds and by institutions reliant on internally significant arrears accumulation generated funds (IGFs) amounted to around 3.7 percent of GDP and 17 percent of total Weak commitment controls and cash expenditures, on average, between 2010 and management have led to cash rationing 2021. Statutory funds are legally established and the accumulation of significant government funds financed through arrears. For instance, expenditures tend to dedicated revenue sources—for example, overshoot budget targets at the beginning earmarked taxes or transfers allocated for of the year and undershoot them at the specified spending categories. These funds end. The Ghana Integrated Financial have independent governance structures Management Information System (GIFMIS) outside the full remit of the Controller and is designed to be the backbone of public Accountant-General’s Department (CAGD), funds management. However, constraints causing a transparency gap around their in data availability and quality, due partly management and spending priorities, and to the outdated software version and IT they are not fully integrated into the budget infrastructure, do not allow GIFMIS to process. Five statutory funds capture half of inform policy makers in a timely manner. the total spending allocated to this category: The information automatically captured on the National Health Fund, the Road Fund, GIFMIS should be improved to include more the Ghana Education Trust Fund, the District types of expenditures such as compensation Assembly Common Fund, and the Energy of employees, pensions, and interest Fund. In the case of health, the institutional payments, which are currently entered status of the National Health Fund (NHIF) manually. In addition, many institutions is consistent with good practice in middle- reliant on IGFs have commercial bank and high-income countries, while in some accounts and are outside of the Treasury other sectors the logic underpinning an Single Account (TSA), thereby limiting full independent fund is much weaker. visibility of the government’s cash position. Collectively, these weaknesses have led to the accumulation of expenditure arrears, with non-energy sector arrears standing at 5.8 percent of GDP as of end 2022, and have contributed to Ghana’s fiscal crisis. A reform strategy can draw lessons from places where technical solutions have been adequately deployed and used, such as Kenya (Box 0.3). Ghana Public Finance Review | Volume 1 / Overview 17 Box 0.3. Improving cash management and commitment controls: The case of Kenya Despite having a strong Integrated Financial Management Information System (IFMIS) used by all national MDAs, Kenya had frequent in-year budget deviations and supplementary budgets. Expenditure controls were focused on payments rather than commitments. Approach. Resolving these issues involved extensive problem identification through a PFM Strategy, with a focus on prioritizing expenditures. A complex prototype tool was developed using Google Sheets to integrate various functions such as MDA cash plans, consolidation, and prioritization controls. The intention was to migrate these functions to IFMIS once the prototype was stable. This initiative led to a broad understanding of the problem, which facilitated the development of a Cash Management Framework. Results. What worked well was the transfer of data and processes to IFMIS, which was informed by the prototype. The establishment of MDA cash plans and their integration into the budgeting software improved compliance and ease of use. The budget, cash plan, and allotment are now aligned within one system that includes a protocol for prioritizing expenditures. Challenges included the slow speed of the process, missing skills to manage the complex tool, and a lack of high-level leadership. Source: Il Jung 2023. Ghana’s PFM cycle is supported by a institutional cooperation, this situation range of disparate IT systems, managed contributes to inefficient budget releases, by different institutions and lacking weak commitment control, and poor cash interoperability. None of the systems in management while negating the ability to use provides fully up-to-date information; extract and present meaningful data to several of them have overlapping remits decision-makers. Appropriate and integrated and functions and feature automation technology is critical to strengthening PFM gaps that leave them vulnerable to human (Box 0.4). error. In a context of insufficient inter- Ghana Public Finance Review | Volume 1 / Overview 18 Box 0.4. Strengthening PFM and accountability through technology: The case of Estonia Estonia is regarded as one of the most successful countries in embracing digital transformation to leapfrog traditional bureaucratic hurdles. It is also among the front-runners in PFM, including adoption of results-oriented budgeting, accrual accounting, and accrual budgeting. Digital solutions support the entire PFM cycle, providing real-time data to help policy makers, integrating financial management processes into a single digital platform, allowing electronic filing of taxes and customs declarations, improving accuracy of financial reporting, and enhancing procurement transparency and efficiency. Digital solutions are backed by strong political commitment and a supportive legal and regulatory environment, which ensure that the systems deliver as intended. Improved service delivery and the digitalization process fostered greater citizen participation and resulted in greater trust in government institutions, helping make Estonia one of the least corrupt and most transparent countries in the world. Sources: e-Estonia; Digital Innovation in PFM, Bill and Melinda Gates Foundation; Corruption Perceptions Index, Transparency International; PFM and the Digitalization of Payments, Center for Global Development; GovTech Maturity Index 2022, World Bank. Ghana Public Finance Review | Volume 1 / Overview 19 0.5/ The public sector wage bill, large and unpredictable, fails to provide the civil service Ghana needs Public spending on compensation weighs on the budget and has lacked comprehensive planning and monitoring Ghana’s public sector wage bill accounts for a significant share of both GDP and government revenues and has been highly volatile. Ghana’s public sector wage bill rose from 2.0 percent of GDP in 2000 to a peak of 8.8 percent in 2013, then fell back to 6.0 percent as of 2019. The wage bill-to-GDP ratio temporarily spiked in 2020 as the COVID-19 crisis depressed GDP growth but has since returned to pre-pandemic levels. Crucially, although roughly in line with those of peer countries, Ghana’s wage bill-to-GDP ratio has been far more unstable over time (Figure 0.9). This outcome may indicate challenges around the effective management of public sector personnel costs, potentially stemming from factors such as periodic adjustments in compensation policies or inconsistent workforce planning. Moreover, although Ghana’s public sector is not oversized, its wage bill absorbs a greater share of government revenues than observed in many of the country’s peers. Ghana Public Finance Review | Volume 1 / Overview 20 Ghana’s wage bill-to-GDP ratio is broadly in line with those of A large share of public sector workers in Ghana have completed most peers, but it has been more volatile tertiary education Figure 0.9. Wage bill, Ghana and comparator groups (% of GDP), Figure 0.10. Figure 0.10. Individuals with tertiary education, by public 2000–2020 and private sector (% of total) 12 10.0 70% 9.0 10 60% 8.0 7.0 50% 8 6.0 40% 6 5.0 4.0 30% 4 3.0 20% 2.0 2 1.0 10% 0 - 0% 14 16 18 20 00 02 04 06 08 10 12 Aspirational Structural Regional Ghana 20 20 20 20 20 20 20 20 20 20 20 Peers Peers Peers Recession Ghana Aspirational Peer Regional Peer Public Sector Private sector Structural Peer Source: World Bank estimates based on World Bank Worldwide Source: World Bank calculations from CAGD, AHIES, WWBI, 2023. Bureaucracy Indicators (WWBI) and IMF WEO data, 2023. The wage bill is hard to manage allowances rather than in base pay. Reliance in the absence of clear policies on on allowances fosters opacity in the salary employment and compensation and system and has been driving regional without complete information. Due to disparities in civil servant compensation. the lack of a long-term policy framework on public sector employment, as well as Although relatively small by international inconsistent recordkeeping and antiquated standards, Ghana’s public sector is a information systems, Ghana’s public sector major domestic employer, especially struggles to forecast its wage expenditures. for highly educated workers. The public Moreover, decisions relevant to public sector sector employs 6 percent of the workforce in employment are often reactive in nature Ghana, 7 percent on average in its regional and driven by political considerations, rather peers, and larger shares in its structural than by a calculated assessment of future and aspirational peers. Importantly, as of organizational needs and fiscal resources. 2021, nearly 76 percent of all public sector As a result, wage bill growth has outpaced workers were professional and technical employment growth within the civil service. staff in service delivery roles. The share of Notably, the average civil servant’s gross Ghanaian public sector employees who have salary rose by 30 percent between 2017 completed tertiary education stands at 63 and 2022, largely through increments in percent, higher than in both Ghana’s private Ghana Public Finance Review | Volume 1 / Overview 21 sector and the public sectors of most peer percent for employees with secondary countries. Overall, Ghana’s public sector education and to 22 percent for those with employs 44 percent of the country’s labor tertiary education—underscoring the risk market participants who have completed of overconcentration of highly educated tertiary education (Figure 0.10). Although individuals in public service. Nearly two- a significant presence of skilled personnel thirds of public sector workers are in the in the provision of critical public services is top two quintiles of the national wage valuable, this employment pattern raises distribution. Against this background, the concerns around potential skills shortages in public sector’s remuneration structure the private sector. does not appear immune from gender bias: female employees tend to earn less than Public sector jobs in Ghana tend to be their male colleagues in most branches of better paid than their private sector the public sector, with the notable exception equivalents, especially for skilled of the health care system. These findings workers. On average, the public sector underscore the disparity in remuneration offers a 20 percent wage premium relative between the public and private sectors as to the private sector, which is consistent well as the importance of a strategic review with the levels observed in Ghana’s peers. focused on wage equity in the former. Specifically, the premium amounts to 58 Credits: World Bank Ghana Public Finance Review | Volume 1 / Overview 22 0.6/ Human development spending must rise but with stronger pro-poor allocation across subsectors and programs Public spending on education is falling short and is overly weighted toward secondary and tertiary levels Ghana has made significant progress in the education sector, but since 2021, the country’s spending on education has fallen short of international benchmarks. School enrollment remains high at the primary level (with gross enrollment at near 100 percent) and has increased at the secondary level of education (to about 66 percent). Ghana has made significant strides in gender equity, achieving a balanced ratio of girls to boys at preprimary, primary, and secondary levels. However, the education budget, which was 24 percent of total public spending in 2018, has fallen to 14 percent of total spending budgeted for 2024. Although not out of line with SSA and LMIC education outlays, this level of spending, 3.1 percent of GDP, falls well below the Global Partnership for Education (GPE) benchmark of 20 percent of government expenditure in the education sector and even falls short of the UN minimum recommendation of 15 percent of total government expenditure and 5 percent of GDP. In an environment of fiscal constraints, Ghana’s education resources are disproportionately allocated to the secondary and tertiary levels. Only about one-quarter of government education spending goes to preprimary and primary levels, and at the primary level, Ghana’s public spending per student as a percentage of per capita GDP is equal to just Ghana Public Finance Review | Volume 1 / Overview 23 over half the average of its aspirational Strategic Plan (2018 to 2030). Capital peers. In contrast, Ghana spends more spending was primarily channeled through than comparators on secondary and the Ghana Education Trust Fund, sustained tertiary education. The increasing share of by an earmarked tax. total public education spending allocated to the tertiary level raises concerns about Despite the complete removal of equity since the gross enrollment ratio school fees, households continue to is only 17 percent (although well above make large out-of-pocket payments the SSA average of 9 percent) and tertiary for education, notably for food and students are less likely to come from lodging expenses. Important objectives disadvantaged backgrounds. of public spending are to lower financial barriers to access services and reduce Most education funding is used for the burden on households for financing staff compensation, leaving little for education. In 2017, household spending classroom materials or infrastructure on education expenses at the pre-school improvements. Ghana’s education level was equivalent to about 40 percent expenditure, particularly the portion of government spending per student and allocated from the central government’s at the primary and junior secondary levels, budget, largely goes toward staff to about 50 percent. Programs intended compensation. There is a sizable teaching to reduce the burden on households— workforce, and earnings for teachers are capitation grants to schools and the Ghana relatively high, above those of the average School Feeding Program (GSFP)—have wage worker in Ghana and higher than been chronically short of funds sufficient to in most of its West African neighbors. As cover household expenses. a result, in 2020 and 2021, more than 70 percent of the education budget was Ghana’s National Health Insurance allocated to staff compensation, leaving Scheme (NHIS) faces financing very little for non-salary expenditures shortfalls that are undermining on teaching and learning materials and progress in health and protection of for improvement and maintenance of vulnerable groups school infrastructure. Improving teacher management and teaching practices within Ghana’s progress in health and nutrition public classrooms to deliver better learning outcomes has been supported by public outcomes is critical to maximize the funding, and the country has stood at efficiency of public spending on education. the forefront of health financing reform Not only is spending on goods and services in Africa. Ghana has made substantial (18 percent of the education budget) and progress toward universal health coverage, on investment (12 percent) constrained, and the country’s health outcomes but the majority of these funds flow to compare well with those of its regional and secondary and tertiary levels. One outcome economic peers. Public funding, through is that the pupils-to-textbook ratios for the budget of the Ministry of Health (MoH) English, mathematics, and science in public and the NHIS launched in 2003–2005, is the primary schools are just shy of 2:1, far major source of financing for the health above the prescription of one book per sector in Ghana, accounting for about 50 child set out in the government’s strategic percent of total spending. While public framework for education—Education spending on health in Ghana is slightly Ghana Public Finance Review | Volume 1 / Overview 24 lower than would be expected given its interventions. These interventions are also economic level, it is higher than in other provided at the secondary level which is countries in SSA (excluding high-income also essential for addressing high-priority countries). Out-of-pocket payments for health challenges, notably maternal health services by households were mortality. Combined, the community, estimated to account for about 35 percent primary, and secondary levels of health of total health spending as of 2016, care receive more than half of the public although there is evidence that these resources (channeled through both the payments have been on the rise in recent MoH and the NHIS), which is consistent years. Development assistance for health with Ghana’s demographic and health accounted for the remaining 15 percent profile. of total health spending and is particularly used for capital investments and non-salary Financing shortfalls for NHIS are expenditures. undermining progress in health, and two distinct financing gaps explain recent The NHIS has protected households from stagnation in NHIS spending. First, the the financial burden of health care costs, NHIS no longer receives its full National but out-of-pocket spending by households Health Insurance Levy (NHIL) allocation, on health care has been increasing due to a capping law passed in 2017 that in recent years. There are two main limits flows to statutory funds as a share mechanisms to reduce the financial burden of total government revenues. Although on households for health care. The first is limiting the use of statutory funds to free-of-charge provision by government protect the pre-eminent role of MDAs may health services of selected interventions, be appropriate in other sectors, it is less notably reproductive and child health so in the case of the NHIS, whose model services. The second is the NHIS, primarily of ‘purchaser-provider split’ with the MoH financed by an earmarked tax, which covers is consistent with best practice in health 60 percent of the population (2022) and financing across middle-income countries. aims to cover the costs of a larger set of The second shortfall in NHIS spending services (provided by the government and derives from the gap between budgeted empaneled private providers) for enrolled allocations and actual cash received from individuals. Introduction of the NHIS in the MoF. 2003–2005 led to a substantial decrease in household out-of-pocket payments Social assistance programs are well- for health care, with great benefits for targeted to the poor, but their impact the poor. However, achievements in is limited by low benefit levels financial protection for households may be eroding—out-of-pocket payments remain Due to the small size of their outlays, common and account for a growing share Ghana’s social assistance programs of the revenues of health care facilities. have had modest effects on poverty and inequality. At 1.4 percent of GDP, Ghana’s Appropriately, community, primary, and spending on public social protection secondary levels of care receive more programs is lower than the SSA average, than half of public health resources. The but additionally, most of this spending community and primary levels deliver the goes through social insurance programs highest-impact and most cost-effective not targeted to the poor. Ghana’s Social Ghana Public Finance Review | Volume 1 / Overview 25 Security National Income Trust (SSNIT) inflation. For example, spending on LEAP, provides pensions which, until recently, the main program supporting extremely were limited to retirees who worked in poor households, is less than US$0.04 the formal sector, and the NHIS is meant per day per person. Altogether, spending to be universal, not focused on the poor. on these programs is equivalent to just The main social assistance programs in 0.2 percent of GDP and 1.0 percent of Ghana are the Livelihood Empowerment overall government spending, far below Against Poverty (LEAP) program, the Labor- the averages of comparator countries (1.5 Intensive Public Works (LIPW) program, and percent of GDP). the GSFP. These programs use a variety of targeting mechanisms to reach the poor. External funding is critical to these The targeting of the LEAP program, which programs, to supplement resources provides unconditional cash transfers to available domestically. The LEAP program households in impoverished geographic receives partial funding from external areas, and the GSFP, which provides sources, constituting 50 percent of its food at schools, in particular, is both financing in 2023. The LIPW program is technically sound and effective at reaching fully financed by the World Bank. To have a the poor. However, such programs have significant impact on poverty and to build had a limited impact on poverty and on their effectiveness, these programs inequality due to low levels of spending need to continue expanding coverage and and their erosion in real terms caused by value of benefits. Credits: Langford Kwabena on Pexels Ghana Public Finance Review | Volume 1 / Overview 26 0.7/ Agriculture, critical for rural Ghanaian livelihoods and for export earnings, could greatly benefit from more efficient and better targeted government support Despite a strong performance, future agriculture growth is stifled by a lack of inputs and infrastructure Agriculture is a major source of employment and export earnings in Ghana. Between 2012 and 2021, agriculture accounted for 21 percent of Ghana’s GDP and employed 41 percent of the workforce—including almost 67 percent of the rural population as of 2019. The value of agricultural exports averaged US$3.23 billion in 2012–2021, or 24 percent of total export earnings. Ghana is the second-largest cocoa bean producer in the world; cocoa and related products account for 74 percent of its agricultural exports and cocoa beans alone for 56 percent. At the same time, the country relies heavily on imports of certain key food items, especially cereals. Agriculture has grown robustly in recent years, even during the pandemic, but future growth needs modern inputs, services, and infrastructure. The agricultural sector’s real value added grew by an average of 4.5 percent per year between 2012 and 2021, owing to both intensification and extensification efforts. As the COVID-19 shock disrupted Ghana’s economy in 2020, the value-added growth rate in agriculture rose from 4.7 percent in 2019 to 7.3 percent in 2020 while suffering major drops in industry and services. However, further agricultural development is stifled by significant challenges, especially around the supply, demand, and adequate use of modern inputs (such Ghana Public Finance Review | Volume 1 / Overview 27 as agrochemicals and certified seeds) they still exceed the SSA average on the and complementary services (such as latter benchmark. The level of government extension, credit, and mechanization), as spending on agriculture stands well below well as the absence of key infrastructure the sector’s contribution to GDP. Moreover, (for example, for irrigation, transport, and the gap between budget allocations storage). and actual agricultural expenditures is wide, indicating inefficiencies in the Agriculture spending has been implementation of the budget. Almost declining and is inefficient, largely 75 percent of the central government’s targeted toward input subsidies agricultural expenditures between 2019 and 2022 went toward current expenses, The share of government resources with only 26 percent allocated to much- dedicated to agriculture has been needed capital investment. Input subsidies, shrinking while being largely absorbed in particular, entailed a heavy fiscal by current expenses. Government burden, accounting for over half of the expenditures on agriculture have stagnated expenditures by the Ministry of Food and in absolute terms (growing by 0.41 percent Agriculture (MoFA) (excluding project- between 2019 and 2022) and fallen to 2.1 related spending) over the same period percent of total expenditures—although (Figure 0.11). Government spending in agriculture has neglected capital investment Figure 0.11. Economic composition of central government agricultural expenditures—2019–2022 100% 8% 13% 90% 20% 11% 13% 80% 25% 15% 26% 70% 31% 34% 60% 50% 33% 40% 23% 43% 33% 32% 30% 20% 33% 29% 25% 10% 18% 18% 0% 2019 2020 2021 2022 Average 2019-2022 Compensation Goods and Services Interest Non-Financial Assets Social Benefits Subsidy Other Expenses Source: World Bank calculations based on data from MoFA and the Ghana Audit Service. Ghana Public Finance Review | Volume 1 / Overview 28 Planting for Food and Jobs (PFJ), the The cocoa sector has accumulated government’s flagship agricultural large debts and its governance needs program outside the cocoa sector, has to be reformed had mixed success. The PFJ, implemented between 2017 and 2022, has been linked Ghana Cocoa Board (COCOBOD) has to increased availability of certified seeds accumulated large annual losses over and fertilizer, and the output of some of its the years and needs to implement a key target crops—maize and cassava—grew comprehensive turnaround strategy. by more than 10 percent per year between The Board is a state-owned company solely 2016 and 2019. The program has improved responsible for Ghana’s cocoa industry, food security, reduced poverty, ensured controlling the purchase, marketing, and the availability of selected food crops on export of all cocoa beans produced in the the market, and provided job opportunities country. It has accumulated large losses within the agribusiness value chain. due to high rollover cost of outstanding However, the PFJ suffered from a range of cocoa bills, high operational costs, shortcomings, from ineffective beneficiary and elevated quasi-fiscal operations targeting and crowding out of commercial (for example, fertilizer provision and input sales to low input use efficiency and rural roads development). To restore poor marketing support to farmers. The profitability and financial viability, a second phase of the PFJ, started in 2023, turnaround strategy is under preparation, has shifted from a model based on direct with expenditure consolidation measures input subsidies to one focused on targeted including the rationalization of cocoa credit provision, reducing the MoFA’s roads, the phasing out of the fertilizer spending on agricultural inputs by 98 input subsidy to farmers, the reform of the percent between 2022 and 2023. Producer Price Review Mechanism, and enhanced fiscal discipline. To be effective, this strategy should examine COCOBOD’s governance structure and explore pathways for modernizing the sector. Ghana Public Finance Review | Volume 1 / Overview Credits: freepik 29 Ghana Public Finance Review | Volume 1 / Overview 30 0.8/ Policy recommendations: To implement a fair and sustainable adjustment, Ghana needs to shift from short-term crisis response to long-term structural reforms Ghana has taken decisive steps to stabilize the economy since 2022. With World Bank and IMF support, it embarked on an ambitious fiscal consolidation, a comprehensive debt restructuring, and enhanced monetary policy discipline; this will reduce external financing needs and ultimately help restore debt sustainability. Ghana now needs to stay the course on ongoing reforms and deepen some of them, such as the implementation of the Medium-Term Revenue Strategy (MTRS) and the strengthening of commitments controls and cash management. Since the required fiscal adjustment is significant—and may need to be even larger—it is critical to ensure that it is both fair and efficient. Ghana’s current crisis recovery plans hinge on an ambitious fiscal consolidation and significant debt relief. Ghana’s fiscal adjustment should be sustainable and equitable. It needs to rely on an overall improvement of the fiscal policy framework, including both expenditure and revenue measures, to ensure that the structural fiscal deficit is reduced in the long run. The burden of the adjustment should not fall on its poorest and most vulnerable citizens. In the short term (by next year), Ghana needs to ensure that the adjustment is fair and efficient In the current fiscal crisis, it is important to protect pro-poor and pro-growth spending. Fiscal measures should be assessed not only Ghana Public Finance Review | Volume 1 / Overview 31 in terms of their immediate fiscal savings but also with regard to their potential impact on the poor and on growth (their fiscal multiplier). Expenditure control measures, for instance, should not result in lower spending on social protection, public health, or public education: these spending categories help promote equity and protect the most vulnerable Ghanaians during this crisis. Similarly, public investment should not bear the brunt of spending adjustment as it would have a long-lasting negative impact on the growth potential. Instead, it is critical to enforce expenditure controls, notably by ensuring that all major public institutions (including those reliant on IGFs) are on the GIFMIS. Revenue enhancing measures should also favor expanding the tax base and relying on efficient taxes, in line with the recently adopted MTRS. In the medium (next 3 years) to long term (by 2030), Ghana needs to tackle the root causes of the crisis and build the foundations of a robust fiscal system which can support its long- term development goals To this end, four high-level policy priorities emerge from this report’s analysis. Entrenching fiscal discipline via a fiscal rule to limit pro- 1 cyclicality, more effective spending controls, and better oversight of contingent liabilities Strengthening the fiscal rule and the fiscal council while building demand for fiscal transparency would improve fiscal discipline. Ghana should explore replacing the current fiscal balances rules by the combination of an expenditure and a debt rule (with well-defined escape clauses and limits on external borrowing). It should strengthen the fiscal council’s institutional independence and clarify its mandate. Finally, Ghana should build (with technical assistance from its international development partners) demand for fiscal data and analysis, for instance, by engaging with Parliamentarians, CSOs, think tanks, and the media to help them access quality budget data and strengthen their capacity to conduct fiscal policy analysis. PFM should be strengthened, and the quality of available fiscal data enhanced. Ghana should enact structural PFM reforms to support fiscal discipline and bolster transparency, including improving the budget preparation process to enhance its credibility, strengthening commitment controls and cash management (notably by expanding the scope of the GIFMIS and the TSA) to improve Ghana Public Finance Review | Volume 1 / Overview 32 budget execution, and ensuring a greater results orientation via full implementation of the MTEF and PBB. The use of technology could further enhance accountability and increase trust in the government. Critically, Ghana should also address the shortcomings in data availability identified by this study, such as those related to the coverage of budget execution data and detailed sectoral data. Ghana’s ability to contain contingent liabilities and reduce rigid expenditure will be crucial to sustaining the consolidation efforts. It is key to consolidate and deepen sector reforms to limit contingent liabilities, notably in the energy and cocoa sectors. The high and increasing level of public spending of the last decade calls for strategies to contain non-priority expenditure. Key measures to this effect, some of which are already envisaged by the government, include reducing rigid expenditures by containing the public sector wage bill, rationalizing public spending on goods and services, and limiting transfers to government units; consolidating and deepening energy sector reforms to contain energy subsidies; and revising the prioritization of capital investment projects. 2 Sustainably enhancing DRM to reduce external financing needs and support Ghana’s development goals Ghana needs to sustainably and equitably improve DRM. This will require the steadfast operationalization of the country’s MTRS and the implementation of key reforms, including removing VAT exemptions, reforming the CIT by phasing out tax holidays and exemptions and strengthening safeguards against profit-shifting, reducing customs exemptions, and enhancing the progressivity of PIT. The oversight of tax expenditures should also be strengthened to accurately assess their fiscal cost and benefits as well as manage them transparently. Carefully managing the financing mix to match the return 3 of investment with financial costs Ghana should ensure that its financing sources minimize macro- fiscal risks and are adapted to its financing needs. In the period leading up to the current crisis, Ghana has increasingly relied on non-concessional external financing, which contributed largely to create the macroeconomic vulnerabilities that led to the current Ghana Public Finance Review | Volume 1 / Overview 33 crisis. Going forward, Ghana’s Medium-Term Debt Strategy (MTDS) should carefully weigh the benefits and risks of foreign borrowing. It should carefully assess the rationale for non-concessional external borrowing, for instance, ensuring that it supports infrastructure investments or public expenditure categories which require significant imports of goods and services. Ring-fencing investment spending and prioritizing public 4 goods spending that supports human development, economic transformation, and resilience In the medium term, fiscal policy will need an increased focus on human development, growth-enhancing expenditure, and climate resilience. Fiscal policy should be more closely aligned with Ghana’s long-term human and economic development objectives, by focusing on the following: • Human capital and equity: Along with protecting social assistance programs, maintain and improve financing for primary-level education and health services, which have the highest impacts on learning and health outcomes and are also more likely to benefit the poor. Prioritize specific high-impact and targeted interventions: in education this includes stronger teaching practices, teaching at the right level for strong learning outcomes and support for out-of-school children; in health, one prominent example is child immunization. LEAP is highly effective in supporting the ultra-poor. Improve the quality and management of human resource (HR) to improve efficiency and address quality and equity challenges. • Agricultural transformation: Focus on four policy areas: (1) enhance the provision of public goods through more capital expenditures, (2) provide farmers with comprehensive support including technical assistance, (3) improve the planning and execution of public spending and the government’s capacity to monitor and measure agricultural expenditures accurately, and (4) bring the cocoa sector to profitability and improve its transparency. • Economic transformation: Improve transport and trade- related logistical services, particularly inland connections and trade facilitation. Invest in mobility, connectivity, and urban planning. Finally, support the development of information Ghana Public Finance Review | Volume 1 / Overview 34 and communication technology (ICT) infrastructure (notably broadband internet and universal service) and promote research and development (R&D), technological innovation, and digital upgrading in Ghana’s private sector (in the form of competitive grants or cost-based income tax incentives for R&D). • Climate-resilient and low-carbon development: In the medium term, given financing constraints, invest in ‘no regret’ climate actions that also deliver economic benefits (for example, integrating agriculture development, forest, and water management; planning for resilient cities and infrastructure; setting the foundations for low-carbon development in energy and transport). In the long term, consider boosting climate resilience through sectoral interventions, deepening financial and disaster preparedness to shocks, and setting the foundation for a low-carbon transition in energy and transport. Credits: Seyiram Kweku on Pexels Ghana Public Finance Review | Volume 1 / Overview 35 Table 0.1. Summary of Key Policy Recommendations Measures Timeframe ST MT LT Priority 0 - Staying the Course on the Current Adjustment and Improving its Quality Containing Spending in a Fair Way Contingency planning: Prepare a set of additional contingent revenue and expenditure measures (notably in case of election overspending). Quality of adjustment: Protect equity-enhancing social spending and public investment so that the burden of the adjustment does not fall on poor Ghanaians and avoid jeopardizing growth prospects. Budget execution: • Enforce sanctions under the PFM Act and improve compliance with other frameworks for the national budget. • Expand coverage of GIFMIS and the TSA to all budget entities, including those with IGFs, and finalize an inventory of all public investment projects. Ensuring Short-Term Revenue Mobilization Measures’ Efficiency MTRS: Finalize governance arrangements for the MTRS implementation, ensure the Ghana Revenue Authority (GRA) cleans the taxpayer register and ledgers, complete the installation of the Integrated Tax Administration System (ITAS). Tax Exemptions Act (2022): Ensure steadfast implementation of the provisions of the act, notably those related to reporting to Parliament and the periodic review of exemption regimes. Priority 1 - Entrenching Fiscal Discipline and Maximizing Value for Money in Public Spending Shoring-up Fiscal Institutions’ Effectiveness Fiscal rule: Explore replacing the current fiscal balances rules by an easily enforceable and monitorable combination of an expenditure and a debt rule, with limits on external borrowing. Fiscal council: Review the fiscal council framework to strengthen its independence and clarify its mandate to focus on assessing budget performance and compliance with the fiscal rules. Demand for fiscal transparency: Support various stakeholders (Parliamentarians, CSOs, think tanks, media) to access quality fiscal data and build capacity to analyze fiscal policy. Enhancing PFM, Results Orientation, and Accountability Budget ceilings: Introduce hard budget ceilings to replace the indicative ceilings circulated at the beginning of budget preparation. MTEFs and PBB: Issue guidelines to streamline and standardize the preparation of MTEFs by MDAs, streamline policy outcome indicators and focus on high-level strategic outcomes, and expand the coverage of public investment plans. Climate-informed budgeting: Strengthen the existing climate budget tagging system and increase transparency of climate spending. Incorporate climate-smart appraisal guidelines into PIM regulations. Develop and implement green public procurement guidelines. IT ecosystem / Use of technology • Improve interoperability of IT systems, introduce a unified project identification number across systems, develop application programming interfaces (APIs). • Develop a strategy to leverage technology to enhance budget transparency and results orientation. Fiscal data availability • Expand the expenditure data automatically captured by GIFMIS to include compensation, pensions, and interest payments. • Ensure the collection and publication of exhaustive fiscal data, readily usable for analysis (notably by updating the BOOST database and making it public). Ghana Public Finance Review | Volume 1 / Overview 36 Measures Timeframe ST MT LT Improving Allocative and Technical Spending Efficiency General government spending efficiency and rigidity • Limit revenue earmarking and transfers to government units (notably to statutory funds). • Review and rationalize ‘unspecified’ expenditures under general government services in the GIFMIS as well as goods and services spending on the executive and legislative organs. Energy sector contingent liabilities • Fully estimate the costs of energy sector support needs and integrate them into the budget. • Sustain and deepen implementation of the Energy Sector Reform Program (ESRP): improving the Electricity Company of Ghana (ECG) commercial and technical performance, adjusting tariffs (according to the multi-year tariff order) to protect vulnerable consumers, completing negotiations with independent power producers (IPPs). Capital spending efficiency/ PIM: Improve the evaluation and prioritization of public investment projects. Improving the Management of the Public Sector Wage Bill Wage bill planning and control mechanisms • Define a long-term framework for public sector employment policy to support public organizations for cohesive strategy design and implementation. • Mandate the development, improvement, and utilization of data management systems with robust HR data integrated with payroll data to support evidence-based strategic planning of workforce. Strategic HR management: Strengthen establishment controls, guarantee more transparent and evidence-based recruitment practices, and move toward strategic approaches to workforce planning. Public sector compensation practices: Mandate public disclosure of public compensation structure and updates, conduct periodic assessment of the wage bill, benchmark salaries against the private sector, and regularly review compensation levels, promote more equitable remuneration, and perform effective performance management and monitoring. Cost-of-living adjustments and inflation indexation: Strengthen existing mechanisms that allow for a uniform, predictable, and fiscally sustainable adjustment of civil servant wages that are more in line with the experienced inflation in the economy. Priority 2 - Sustainably Enhancing DRM to Reduce External Financing Needs and Support Development Goals Personal Income Tax Employee benefits: Review definition of employment income to include allowances and compensation currently excluded, benefits on motor vehicles, and taxation of fees paid to directors. PIT return filing threshold: Reduce the administrative burden on the GRA, eliminate obligation to file annual PIT return for those who only earn employment income from a single source, or set an income threshold below which employees do not need to file a return. Rental income: Limit tax avoidance opportunities and expand the tax base by setting common 15 percent tax rate on rental income from residential and commercial properties. Taxation of capital gains: Enable capital gains taxation on personal assets that can appreciate, ensure that capital losses can only be offset against capital gains, and limit the carry-forward of capital losses. PIT reliefs: To simplify the PIT regime and reduce the compliance gap, rationalize and/or reduce the number of available reliefs, tax rates (for example, overtime tax), and tax bands (from seven to about three). Tax Expenditures Import duty exemptions: Review and rationalize import duty exemptions granted by Parliament. VAT: Remove VAT exemptions on inputs that do not allow to lower the cost of goods and services for final consumers and reduce market distortions; remove the VAT exemption on land and dwellings. Ghana Public Finance Review | Volume 1 / Overview 37 Measures Timeframe ST MT LT Cocoa sector: Remove PIT exemption on earnings from cocoa farming. Taxation of pension contributions and benefits: Reform the triple-exemption model on contributions to retirement funds, favoring a model that includes such contributions in the tax base. Priority 3 - Carefully Managing the Financing Mix to Match the Return of Investment with Financial Costs Medium-Term Debt Strategy (MTDS): Ensure that the MTDS clarifies the expected amount of external borrowing, its intended uses, and the associated risks. External borrowing policy: Develop a policy on non-concessional external borrowing, clarifying its acceptable usage and measures to mitigate risks (in connection with the revised fiscal rule). Priority 4 - Ring-fencing Investment Spending and Prioritizing Public Goods Spending that Supports Human Development, Economic Transformation, and Resilience Education Budget level and allocation • Increase the share of non-salary expenditure in the education budget and sustain and enhance financial support for primary-level education. • Ensure that education spending does not fall below 20 percent of the government budget. Support to out-of-school children: Identify and address barriers to enrollment and provide flexible learning options and offer tailored support to reintegrate out-of-school children into formal education settings. Learning outcomes: Improve pedagogical practices at primary schools through instruction, teacher coaching and mentoring, and universal design for learning and expand teacher capacity for play-based learning and ensure a conducive learning environment in kindergarten. Health Budget level and allocation • Emphasize critical non-wage expenditures (adequate supply of vaccines, essential medicines, and so on). • Enhance the timely allocation and transfer of earmarked funds to the NHIS. Strengthen the primary health care service delivery system • Shift IGFs toward preventive and promotive services at the district level, develop Networks of Practice, align the Ghana Essential Health Service Package with the NHIS benefits package. • Revisit the NHIS’ benefit package and tariffs. NHIS coverage: Identify barriers to registering and renewing membership for the indigent population, focus resources on enhancing enrollment in lagging regions, and investigate the prevalence of informal co-payments among both NHIS members and non-members. Consolidated budget planning and reporting • Ensure the regular production of the national health account, publish timely annual financial reports, and review the 2015 health financing strategy. • Develop implementation plan with measurable goals and timelines to transition away from external financing for critical commodities/activities. • Deploy the GIFMIS at the district and sub-district levels of health care. Social Protection Benefit levels of key social programs • Ensure inflation indexation of LEAP grant is implemented in 2025, as committed by Cabinet. • Increase the value of the GSFP grant by a further 50 percent in 2025 and index it to inflation to maintain its nutritional value for children. Shock-adaptive programming: Ensure that the Ghana national household registry (GNHR) is regularly updated with current information and is interoperable with other administrative registries to become a more dynamic registry. Ghana Public Finance Review | Volume 1 / Overview 38 Measures Timeframe ST MT LT Expand coverage of targeted programs while exiting ineligible beneficiaries • Finalize the GNHR scale-up and reassessment of the LEAP beneficiaries to improve coverage and targeting of all the extreme poor and develop a strategy to ensure periodic reassessment. • Expand enrollment of informal sector workers and social program beneficiaries onto the NHIS and SSNIT’s informal sector schemes. Agriculture Composition of agriculture spending: Repurpose subsidies toward capital expenditures and mobilize financial resources from development partners, the private sector, and climate finance. Farmer support / technical assistance: Use digital tools to enhance cost-effectiveness of knowledge dissemination and promote non-public extension systems such as farmer-to-farmer extension. Cocoa sector viability: Ensure implementation of key measures from the COCOBOD turnaround strategy and make cocoa-related expenditures normalized and transparent under MoFA’s reporting. Economic Transformation Spatial transformation: Prepare a public/private investment plan to develop transport and trade-related logistical services, particularly inland connections, and improve trade facilitation as well as mobility, connectivity, and urban planning. Technological transformation: Support development of ICT infrastructure (for example, broadband internet and universal service) and promote R&D, technological innovation, and digital upgrading in private sector (in the form of competitive grants or cost-based income tax incentives for R&D). Climate Change Adaptation and Mitigation No regret actions (with economic benefits) • Integrate agriculture development, forest, and water management: Support climate-smart agriculture (CSA) and integrated water management, reduce deforestation, strengthen land rights. • Create the conditions for resilient cities and infrastructure: Integrate risk data into land use and city-wide infrastructure plans, reduce urban sprawl, and introduce zoning in flood risk areas. • Set the foundations for low-carbon development in energy and transport: Increase solar photovoltaic (PV) generation, improve vehicle regulations and fuel standards, and improve traffic management. Boosting climate resilience via sectoral interventions and investments • Infrastructure: Promote a clean energy transition and modernize transport. • Urban development: Build more sustainable cities and resilient infrastructure systems. • Agriculture: Strengthen integrated agriculture, forest, and water management and invest in CSA. Ghana Public Finance Review | Volume 1 / Overview Credits: World Bank 39 Ghana Public Finance Review | Volume 1 / Overview 40 References Arslanalp, Serkan, Barry Eichengreen, and Peter Blair Henry. 2024. “Sustained Debt Reduction: The Jamaica Exception.” Il Jung. 2023. “Nigeria’s Tax Revenue Mobilization: Lessons from Successful Revenue Reform Episodes.” IMF. World Bank. 2021. Cash Management and Commitment Control: Principles and Problems in Practice. EFI Insight-Governance. Washington, DC: World Bank. World Bank. 2022. Jamaica - SCD: Boosting Recovery and Sustainable Economic Growth. Washington, DC: World Bank.