Report No. 40676-GH Ghana 2007 External Review of Public Financial Management (In Two Volumes) Volume I: Main Report June 2008 PREM 4 and AFTPC Africa Region Document of the World Bank MoFEP MinistryofFinance and EconomicPlanning MoESS MinistryofEducation, Science and Sports M o F A MinistryofFoodandAgriculture M o H MinistryofHealth MORT MinistryofRoads andTransportation M S M E Micro, Small and MediumEnterprise MTEF Medium-Tern Expenditure Framework NHIF National Health InsuranceFund NHIL National Health Insurance Levy NREG Natural Resource and Environmental Governance Program OECD-DAC Organization for Economic Co-operation and Development -Development Assistance Committee OHCS Office o f the Headof Civil Service OPCPR OPCS Procurement PAC Public Accounts Committee PEFA Public Expenditure and Financial Accountability PETS Public ExpenditureTracking Surveys PFAU Project and FinancialAnalysis Unit P F M Public FinancialManagement PPA Public Procurement Authority PPME PPA's Public Procurement Model o f Excellence tool PREM Poverty Reduction and Economic Management RAGB Revenue Agencies Governing Board SOE State-Owned Enterprise ST&MT AP GoG Short and Medium-Tern Action Plan for P F M V A L C O Volta AluminumCompany VAT Value-Added Tax VATS Value-Added Tax Service VRA Volta River Authority WE31 World Bank Institute Vice President: Obiageli K.Ezekwesili (AFRVP) Country Director: Ishac Diwan (AFCW1) Sector Director: Sudhir Shetty (AFTPM) Sector Manager: Antonella Bassani (AFTP4) Task Team Leaders: Marcel0 R.Andrade (AFTP4) Amadou T. Toure (AFTPC) *. 11 TABLE OF CONTENTS PREFACE .............................................................................................................................................. v EXECUTIVE SUMMARY ................................................................................................................. vii 1 INTRODUCTION 1 2.. .......................................................................................................................... REVIEW OF ECONOMIC PERFORMANCE ........................................................................... 2 COUNTRY ECONOMICSITUATIONAND MACRO-ECONOMICOVERVIEW ............................................ 2 ECONOMIC OUTLOOK ....................................................................................................................... 5 BUDGETARY ................................................................................................................... BUDGET ALIGNMENTWITH GPRSII............................................................................................... 25 OUTCOMES 8 CONCLUSION AND NEXT STEPS ...................................................................................................... 28 3. PUBLIC FINANCIAL MANAGEMENT ................................................................................... 30 REVIEW OF PROGRESSOF GOVERNMENT'S SHORTAND MEDIUM TERMACTIONPLAN................30 SCREENING CAPITAL EXPENDITURES, ITSQUALITY AND INSTITUTIONAL ARRANGEMENTS .........53 CONCLUSIONAND NEXT STEPS ...................................................................................................... 57 4. PUBLIC PROCUREMENT ......................................................................................................... 62 BACKGROL~ND ................................................................................................................................. DEVELOPMENTS CPAR2003................................................................................................ 62 SINCE INDEPENDENTREVIEW OF THE GOVERNMENT'S SELF-ASSESSMENTOF PUBLIC PROCUREMENT 63 ...63 JOINTASSESSMENTPUBLICPROCUREMENTUSINGTHEOEDC/DACBASELINE STRENGTHSAND CHALLENGESOF GHANA'SPUBLIC PROCUREMENTSYSTEM............................... OF INDICATORS 64 66 OVERVIEW OF THE GOVERNMENT'S PROCUREMENTREFORMPROGRAM ...................................... 70 HOW WELL ALIGNEDI S THE GOVERNMENT'S REFORMPROGRAM ................................................. 72 PRIORITIZATION AND SEQUENCINGOF PROCUREMENTREFORMPROGRAM ................................. 74 INSTITUTIONAL ISSUESREF0RM OR PROCUREMENT 78 CONCLUSIONSAND NEXT STEPS .................................................................................................... ...................................................................... 82 ListofAnnexes Annex 1: Calculation of Deviations by Budget Head. 2004-2006 ....................................................... Annex 2: Transparency of Budget Information ................................................................................... 85 89 Annex 3: Statistical Annex ................................................................................................................... 93 ListofTables Table 2.1: Summary Central Government Budgetary Operations . 2002-2007.................................. 4 Table 2.2: Overall fiscal performance .................................................................................................. 8 Table 2.3: ....................................................... Table 2.4: Wage Bill in Selected African Countries .......................................................................... Pattern of Wage Bill Spending by MDA, 2005-2006 12 12 Table 2.5: 2006 Supplementary Budget by sector.............................................................................. Discretionary expenditure by sector (All Sources of Funds) ............................................ 15 Table 2.6: 16 ... 111 Table 2.7: Sectoral Expenditures on Investment. 2004-2006 ............................................................. 16 Table 2.8: Reportingof Contingency byMDA andLineItem' ......................................................... 17 Table 2.9: ..................................... Table 2.10: Poverty RelatedExpendituresby Area (in% of GDP)..................................................... Overviewof ExternalFinancingFlowsby Type andGPRS area 18 19 Table 2.12: Education Sector Expendituresby Programand Source of Funds.................................... Table 2.11: Cross-CountryComparisonofPoverty-ReducingExpenditures...................................... 20 ......................................... 21 Table 2.14: MoFA Expenditure- Actual versus Budgeted, 2004-2006 Table 2.13: Health Sector ExpendituresbyProgramandSource of Funds ............................................ 22 Table 2.15: Natural ResourcesandEnvironment - Agency Budgets,2005-2007 ................................ 23 24 Table 2.16: 2006 Budget andGPRSII .................................................................................................. 25 Table 2.17: 2007 Budget andGPRSII .................................................................................................. 27 Table 3.1: ExpenditureDeviations betweenOriginalBudgetedandActual Outtums for 20 LargestBudget Heads, 2004-20061........................................................................ 30 Table 3.2: QuarterlyPatternof Expenditure,2006' ........................................................................... Table 3-3: Analyses of2006 Budget Implementationby Economic Item(billioncedis)' .................31 34 Table 3.4: Analyses of 2006Budget Implementationfor 10LargestMDAs ................................................... ..................................... 35 Table 3.5: Current status ofaudits of financial statements by GAS 45 Table 3.6: Overview of ProjectDisbursements, 2006-2007.............................................................. 51 Table 3.7: .......................................................................... Table 4.1: MainChallenges andthe Government'sProcurementReformProgram .......................... ProposedKeyMeasures and Sequencing 59 Table 4.2: ProposedKeyMeasures and Sequencing.......................................................................... 73 74 List of Figures Figure 1.1: Ghana's Public ProcurementSystem: Score AggregatedbyPillar ................................ xvii Figure2.1: Budget ExecutionofPovertyReducingExpenditures. TotalandbyBroad Figure2.2: RevenuePerformance. 2004-2006 ExpenditureCategories. January-September2007 (InPercentofPlannedBudget)............39 ............................................................................................. ....................................................................................... Figure2.4: DiscretionaryExpenditureby item(GoGonly)................................................................. Figure2.3: Total Spendingby LineItem 11 13 Figure2.5: DiscretionaryExpendituresby Sector .............................................................................. 14 Figure2.8: 2007 PlannedSpending andGPRSII................................................................................. 27 Figure2.7: 2006 SpendingandGPRSII............................................................................................... Figure2.6: DiscretionaryExpendituresby Sector (All SourcesofFunds).......................................... 14 26 Figure3.1: DistributionofGoGDiscretionaryExpenditureby Quarter .............................................. Figure3.2: DistributionofGoGInvestmentExpenditureby Quarter.................................................. 32 32 Figure4.2: Ghana'spublicprocurement system, score aggregatedby indicator................................. Figure4.1: Ghana's Public Procurement System: Score AggregatedbyPillar ................................... 65 66 List of Boxes Box 2.1: Ghana's NonConcessionalBorrowing................................................................................... Box 2.2: Highlightsofthe 2008 Budget Proposal.................................................................................. 5 Box 3.1: BudgetInformationfor the Wider Public.............................................................................. 7 38 Box 3.2: Improvinganalytical capacities for budgeting ...................................................................... 41 Box 3.3: Internationallessons for the managementof computerizedbudgetsystems ......................... 50 iv PREFACE The 2007 External Review o f Public Financial Management (ERPFM) incorporates a detailed assessment o f Ghana's procurement practices using the OECDDAC "Methodology for Assessment o f National Procurement Systems" and also reviews macroeconomic and fiscal developments, the links between the budget and the Growth and Poverty Reduction Strategy (GPRS), and implementation o f the Government's action plan to strengthen public financial management. This report represents a collaborative effort between the Government o f Ghana and its Multi-Donor Budget Support (MDBS). The 2007 ERPFM team is especially grateful to the senior management o f the Ministry o f Finance and Economic Planning and o f the Public Procurement Board for their active leadership and strong commitment to the exercise and, in particular, during the field work in Accra from May 2 to 16, 2007. The 2007 ERPFM benefits from productive consultations and extensive data provided during the field work by the Government team led by the Honorable Dr. Akoto Osei (Minister o f State, Ministry o f Finance and Economic Planning - MoFEP), which involved Mr. Kwadwo Akowuah (Deputy Auditor General), Mr. Nana J.B. Siriboe (Chief Director, MoFEP), Mr. At0 Essuman (Chief Director, MoESS), Mr. Lepowura Alhaji M. N. D. Jawula (Chief Director, MoH), Mr. Kwabena Adjei- Mensah (Director o f Budget, MoFEP), Mr. A.B. Adjei (Chief Executive, Public Procurement Authority), Mr. Patrick Nom0 (Director-General, Internal Audit Agency), Mr. Eric S. Norgbey (Deputy Director-General, Internal Audit Agency), Mr.Abraham T. Mantey (Deputy Controller and Accountant General), Mr.HarryOwusu(Executive Secretary, Revenue Agencies Governing Board), Mr. Kwabena Oku-Afari (Head, Policy Analysis Division, MoFEP) and Mrs. Yvonne Quansah (Head, Aid/Debt Management Department, MoFEP), Mr. Enoch Cobbinah (Head, Non Tax Revenue Unit, MoFEP), Mr. Eric Appiah (Director, Public Procurement Authority), Mr. J. Afrani (Director, MoESS), Mr. G. Dakpalla, (Director, MoH), Mr. P. Ofori-Asumandu (Ag. Director, MORT)and Mr. Mike Ayesu (Head, World Bank Desk, MoFEP). Key support was also received from senior officials o f MoFEP, PPA, GAS, IAA, RAGB, CAGD, and the ministries o f education, health, and roads and transportation. The report also benefits from consultations on a preliminary draft that took place in Accra, from September 10 to 14, 2007, with MoFEP, the Public Procurement Authority, the Internal Audit Agency, the Ghana Audit Service and the Honorable Chairman o f the Public Accounts Committee. The 2007 ERPFM team benefited from informative meetings with the District Assemblies o f Dangme West and Ga West, and the Ghana Institution o f Surveyors, Ghana Institution o f Engineers, Chartered Instituteo f Purchasing and Supply, SENDFoundation, Ghana Integrity Initiative and Ghana Anti-Corruption Coalition. The preparation o f the 2007 ERPFMwas led by the World Bank and the team included Marcel0 Andrade and Amadou Tidiane Tour6 (Co-Task Team Leaders), Carlos Cavalcanti (Co- Chair MDBS, World Bank), Daniel Boakye (AFTP4), John Muwanga, Johnatan Nyamukapa and Robert DeGraft-Hanson (AFTFM), Smile Kwawukume (AFTPR), Tsri Apronti (AFTPC), Philip Jespersen (AFCWl), Chris Jackson (AFTAR), David Pedley and Ruby Bentsi (DFID), Kofi Marrah (WBIRC), and Mike Stevens (Consultant). Christian Rogg (DFID), leader o f MDBS PFM group, also joined the mission. Several other members o f the World Bank Country Team V (Christine Kimes, Eunice Dapaah, Evelyn Awittor, Laura Rose) also provided valuable information for the preparation of this report. Mary Betley and Andrew Poore, DFID-funded consultants to cover Fiscal Performance and Strategic Resource Allocation issues, andRitaROOS, Charles Taylor and Thomas Hansen, DANIDA-fundedconsultants to cover Public Procurement issues, were also members o f the team and provided main inputs for the preparation of this report. Administrative and secretarial support to the team was provided by Judite Fernandes and Pierre Lenaud (AFTP4) andRita Lartey and Ayishetu Terewina (AFCW1). DFID and DANIDA financing for consultant's support to the preparation of the 2006 ERPFM i s gratefully acknowledged. The peer reviewers of the ERPFM 2007 were Nicola Smithers (AFTPR), Asha Ayoung (OPCPR), and Christian Rogg (DFID, leader of the MDBS PFM group until August 2007) and their comments are gratefully acknowledged. The ERPFM team also gratefully acknowledges detailed comments provided by Irina Luca (AFTPC), David Pedley (DFID, leader of the MDBS PFM group since September 2007) and Ron Neumann (CIDA Adviser to MoFEP) which were considered in the preparation of this report. The work was carried out with guidance and supervision o f Antonella Bassani, Sector Manager o f AFTP4, Mats Karlsson, former Country Director for Ghana and IshacDiwan, Country Director for Ghana. vi EXECUTIVESUMMARY Main Messages 1. The 2007 ExternalReview of Public FinancialManagement (ERPFM) is the fourth in a series of annualassessments by the development agencies that contributeto the Multi- Donor Budgetary Support in Ghana.' The review was prepared in close collaboration and after extensive discussions with senior government officials in the Government o f Ghana, in particular with officials from the Ministry o f Finance and Economic Planning. The team also had informative meetings with the District Assemblies o f Dangme West and Ga West, and the Ghana Institution o f Surveyors, Ghana Institution o f Engineers, Chartered Institute o f Purchasing and Supply, SEND Foundation, Ghana Integrity Initiative and Ghana Anti-Corruption Coalition. The main purpose o f the review is therefore to inform - based on research findings - the policy dialogue on public financial management that takes place inGhana. 2. . The 2007 ERPFM review has four mainfindings: The progress in strengthening the Public FinancialManagement(PFM) system has beencommendable. Inparticular, progress has beennotable inthe reduction inthe audit backlog, the establishment o f new internal audit arrangements and the implementation o f a new budget preparation timetable that ensures that appropriations are approved prior to . the beginningo f the financial year. Budget formulation andexecution needto be further strengthened to improve budget credibility. In order to address the drivers of additionalpublic spending in 2006 and 2007 as well as increase the effectiveness of public investment, attention now should focus on high return actions, such as: (i)completing the implementation of the Integrated Personnel and Payroll Database (IPDD2) and other measures aimed at reasserting control over the wage bill; (ii)ensuring continued reduction in energy subsidies through alignment o f tariffs with current market conditions, including the international oil market prices; and (iii)the building o f capacity to prepare, appraise and implement large . infrastructure projects, especially now that the Government i s preparing for a major infrastructure investment drive. A strong foundation has been laid for open, competitive and transparent public procurement and a major effort is underwaywith a view to buildingunderstanding of the new system and capacity to manage it. Ghana is therefore well placed to continue building this institutional capacity for public procurement through training and creation o f a specialist procurement cadre. It should also refine the Public Procurement Authorities' (PPA) monitoring tool, improving information on future tendering opportunities, mainstreaming procurement into the national budget process, making an independent appeals and complaints mechanism operational, undertaking procurement audits, andreforming the procurement regulatory framework. 0 The successful launch of the Ghanaian Eurobond provides the opportunity to reduce the Government's exposure to the domestic bond market, and restore the ' Theteam was led by the World Bank and included specialists supported by the Danish International Development Agency (DANIDA)and by the UK Department for International Development (DffD). vii virtuous cycle of lower public sector indebtedness that was initiated in 2003 with reductionin domestic debt, declininginflation and domestic real interest rates, and risingpublic and private investment. On September 27, 2007, Ghana issued sovereign bonds in the international capital market, raising US$750million, with a maturity o f 10 years (bullet repayment) and a coupon o f 8.5 percent.2 The long awaited access to international capital markets provides needed funding for infrastructure investments and the opportunity to rebalance the financing o f government expenditures following the recent increase inpublic sector domestic debt. This rebalancing inthe sources o f funding i s important because domestic debt service i s currently the fastest growing expenditure item in the budget, having almost doubled over the last twelve months, rising to an estimated 2 percent o f GDP in the first half o f 2007, compared to just over 1percent o f GDP duringthe same period in2006. However, going forward, it is critical to ensure the judicious use o f non-concessional hnding to sustain gains made on debt sustainability in recent years. 3. Ghana's access to internationalcapitalmarketsshouldprovidethe neededincentive for the Government's renewed efforts for fiscal consolidation, ensuring the sound macro- economic foundation needed to sustain and accelerate the current economic expansion. The Government's ongoing fiscal efforts aim at reestablishing the balance in the composition o f public spending, reasserting control over the wage bill and better targeting the support to the energy sector. A better control o f the wage bill i s being pursued through a fresh approach to public pay setting and firm implementation o f the public sector reform program. There have also been recent efforts to increase emergency power generation and plans laid out for removing bottlenecks in electricity transmission and distribution, which should meet the Public Utilities Regulatory Commission's requirements for restoringutility tariffs to cost recovery levels. 4. The remainder o f this executive summary elaborates on these key findings o f the 2007 External Review o f Public Financial Management (ERPFM). First, it covers recent economic performance and outlook and then reviews issues related to the pattern o f public spending. After reporting on progress in strengthening public financial management, it summarizes findings o f the Public Procurement Assessment. The detailed findings of the Public Procurement Assessment constitute volume I1o f the 2007 ERPFM. At the end o f this summary, Table 3 summarizes the measures that the ERPFM proposes to focus on in the short and medium-term and Table 4 presents the baseline scores o f Ghana's Public Procurement System for each o f the 54 sub-indicators covered by the OECDDAC methodology, respectively. Attached to this volume o f the report i s an Annex with statistical data that formed the basis o f this review. RecentEconomicPerformance 5. Ghana's economic performance continues strong, notwithstanding disruptions in power supply in the latter part of 2006 that persistedinto the first half of 2007. Economic growth reached a record 6.4 percent in 2006 and i s projected to stay at around 6.3 percent in 2007. While the recent performance reflects the stimulus provided by higher public sector expenditure and strong public andprivate sector investment activity, the resilience o f growth also reveals sound economic fbndamentals. The country has ranked among the top ten reformers in The spreads over the U S Treasury bonds of similar maturity and over LIBOR were 387 and 326 basis points, respectively. V l l l e . . the last two Doing Business Reports, with reductions in the time required to register new businesses and to register property, as well as in the ease o f trading across borders. Access to credit by the private sector has also been made easier, as measured both by the Doing Business report and by the private sector's share in total domestic credit. This positive business climate has translated inthe strongperformance o f exports and inthe country's ability to draw on foreign savings, either by taping international capital market, or by continuing to receive large remittance flows from Ghanaians living abroad. Overall exports are project to rise by over 10 percent this year, buoyed by high commodity prices for gold and cocoa, as well as the good performance o f non-traditional exports. Net capital flows are projected to reach US$1.8 billion by end year, adding to the expected US$2.5 billion intransfers (private and official). Inspite o f the good performance o f exports and net capital inflows, these have not been enough to reverse the weakening o f the country's external position. By end-2007, foreign exchange reserves are projected be broadly at the same level as o f end-2006, in terms o f months o f import coverage (Tables 1 and 2). However, about one third o f the projected end-2007 reserves are unused proceeds o f the September 2007 Eurobond issue. Excluding these Eurobond proceeds, reserves would have fallen to 2.1 months o f import coverage. Table 1:SelectedEconomicIndicators,2002-09 RealGDP Consumer Export Import Balanceof Gross Credit to the Growth Price Index Growth Growth PaymentsCurrent International PrivateSector (% change) Index (2000 Index Account Deficit Reserves(months (% of total)* =loo) (2000=100) (% of GDP)' MG&S) 2002 4.5 15.2 106 98 5.3 1.9 47.3 2003 5.2 23.5 128 108 0.5 3.2 52.3 2004 5.6 11.8 144 149 2.7 3.3 49.7 2005 5.9 14.8 145 185 7.0 2.9 55.3 2006' 6.4 10.5 193 226 9.8 2.8 58.4 2007p 6.3 11.0 214 257 13.5 2.7 66.6 200P 7.0 9.0 239 321 10.5 3.0 70.0 20Ogp 7.5 8.3 259 349 9.5 3.0 75.0 Source: International Monetary Fund, and Ghanaian authorities and World Bankstaff projections. 1) Including official transfers. 2) Credit by deposit money banks to the private sector. e) Estimates. p) Projections. Table 2: Savingsand InvestmentBalances,2002-09 GrossNational Aggregate Public OverallFiscal Total Public. Total Dom. Savings Investment Investment Balance Debt Public Debt (% of GbP) (% of GDP) (Yo of GDP) (%of GDP) (% of GDP) (% of GDP) 2002 20.2 19.7 6.1 -6.8 124.5 25.0 2003 24.6 22.9 8.9 -4.4 120.3 21.3 2004 25.2 28.4 12.4 -3.6 93.4 20.7 2005 25.6 29.0 12.0 -3.0 77.1 17.9 2006' 22.3 27.5 12.0 -7.5 42.4 20.0 2007p 25.6 31.8 12.9 -7.8 48.9 25.9 200P 28.6 31.6 12.6 -6.6 49.5 26.0 20Ogp 30.1 32.2 12.7 -3.0 49.0 25.5 Source: InternationalMonetary Fundand World Bankstaffestimates and projections; e) Estimates; p) Projections. i x 6. In contrast to previous years, however, the country's fiscal position was allowed to slip in 2006. Government expenditure rose faster than revenue collections, causing the fiscal deficit to widen by over 4 percent o f GDP, reaching 7.5 percent o f GDP. The main driver o f government spending has been the wage bill, reaching almost lopercent o f GDP as a result o f pay awards that have triggered further requests for pay increase within the public ~ e c t o r . ~ Energy sector subsidies were also one o f the factors placing considerable pressure on the budget. With end-user electricity tariffs estimated to be at least 50 percent below the cost o f power generation, tariff-related energy subsidies are projected to reach around 2.0 percent o f GDP. Recent tariff adjustments are a step in the right direction for bringing them closer to cost recovery. However, further tariff adjustments will be needed to restore the financial viability o f the sector, to respond to the Government's initiatives to bridge the gap inpower supply with new investments in emergency power generation and to remove bottlenecks in electricity transmission and distribution. 7. Projections for 2007 indicate that spending will continue to run ahead of revenue collection, leading to an overall fiscal deficit of around the same level as in 2006 (Le., between 7.5 and 8.0 percent of GDP). Higher spending will result mainly from emergency energy sector-related expenditures and, to a lesser extent, public sector wages and salaries. While the financing o f the deficit is projected to come primarily from tapping external sources, either from external investors interested inholding cedis-denominated asset^,^ or by issuing bond directly in international capital market^,^ the foreign financing o f higher deficits has not completely erased internal tensions resulting from these deficits. The information on the budget execution in the first 7 months o f the year indicates that higher deficits have translated into higherinterest payments on domestic public debt. ByJuly 2007 interest paymentsonpublic debt had already exceeded its budget ceiling by 30 percent.6 Also, higher spending on wages and salaries have meant that Ministries with large payrolls (e.g., Education and Health, which together account for over two-thirds o f payroll expenditures) have experienced the largest increase in expenditures. Thus, by mid-2007 the government had responded to the need for fiscal space for energy-related and payroll expenditure with an across-the-board 30 percent reduction inthe budget ceilings for services and non energy-related capital expenditures. 3 The increase spending on wages and salaries reflected in part the increase hnding for poverty reducing expenditure provided by debt relief. While poverty reducing expenditure reached 10.5 percent of GDP in 2006, up from 6.5 percent in 2003, the share o f public sector wages and salaries in poverty reducing expenditures accounted for about 50 percent. Thus, even though there was a significant increase in funding for poverty reducing expenditures with the implementation o f the Multilateral Debt ReliefInitiative (MDRI), about 50 percent o f the one- thirdincrease infunding for povertyreducingexpenditures was spent onpublic sector wages and salaries. 4 Notwithstanding the Government's successful five year cedis-denominated bond issue in December 2005, the domestic market remains very illiquid. The Bank o f Ghana i s called on to roll these 5 year bonds every 6 months, even though it is estimated that foreign investors account for over three-quarter o f the purchases o f these five year bond. On September 27, Ghana issued a US$750 million, IO-year bullet Eurobond with a coupon of 8.5 percent. By shifting the Governments sources o f financing, it is thought that the dynamics o f the overall public debt has improved. The source of this information is the table on page 7 o f the July 2007 CAGD report and financial statements on the consolidated fund. X The Patternof Spending 8. Past ERPFM reports have taken a special interest in how the budget has been formulated and spent in terms of the Growth and Poverty Reduction Strategy priorities. Managing the budget to achieve the Government's policy objectives i s always a challenge given competing spending demands and the multiple financing sources, some discretionary, others tied to particular expenditure categories. In previous years, there has been a steady increase in the wage bill partly reflecting employment increases and partly correcting historically low levels o f pay. In 2006 the wage bill increased sharply between the first and second halves o f the year. Whilst the average remuneration o f staff o f the Ghana Education Services (GES), largest component o f the wage bill, grew by 23 percent, remuneration o f health service staff, the second largest, increased by 181 percent, with an overall increase in average remuneration for all employees o f 44 percent. These variations reflected the separate approaches taken to wage negotiation, and, in the case o f health, the perception that action was needed to prevent the firther loss o f skilled staff to the private sector and abroad. 9. With the wage bill now just under half of overall tax revenues, and pay anomalies betweenservices generatingpressurefor further increases,the Government recognizes that continuation of existing pay setting arrangements is unsustainable. A Fair Wages Commission i s looking at equity issues across services, and the Government has undertaken a comprehensive payroll review, as part o f its public sector reform program. The latter envisages shedding surplus staff through rightsizing and linking pay more closely to performance. The Review welcomes these initiatives as critical steps towards a sustainable policy for pay and employment in the public sector in Ghana. These actions are important because payroll expenditures are crowding out expenditures in other areas, including expenditures needed to continue running government. Spending on services and domestically financed investment in 2006 were reduced by one-third and two-thirds o f the budgeted amounts, respectively, to accommodate higherpayroll spending. 10. Capital spending increased in 2006 in response to the Government's policy to improveinfrastructureand accelerategrowthto achieve middleincomestatus by 2015, but not as much as intended. The delay inraising infrastructure expenditure was due chiefly to the time needed to prepare, finance and implement large infrastructure projects, as well as some crowding out o f investment spending by the wage bill and energy sector subsidies. A similar situation i s projected to happen in 2007, as there might not be enough lead time to initiate some o fthe capital expenditure envisioned inthe budget andthe July 2007 supplementary budget. 11. The Government has still been able to maintain the thrust of poverty reducing spendingin 2006 and 2007, which is projected to stay around 10.4 percent o f GDP in 2007 - close to the level o f 10.5 o f GDP in2006, and up from 8.5 percent o f GDP in2005. Most o f the spendingis on basic education, health and rural electrification, which together account for more than 60 percent o f domestically financed total poverty reducing spending. By increasing pro- poor spending as a share o f GDP, from 4.8 percent in 2002 to 10.4 in 2007, Ghana is broadly in line with average pro-poor spending o f Post-HIPC Decision Point Countries. 12. Further strengthening of the pro-poor focus of public spending is recommended. This should contribute to narrow Ghana's gap comparing with countries such as Ethiopia, x i Tanzania, Uganda and Nicaragua. To sharpen the pro-poor orientation o f public expenditures it is recommendedthat a study be conducted to deepen the knowledge about funding gaps faced by regions with higher incidence o f poverty (e.g. northern region). This study should also analyze the adequacy o f the sectoral composition o f poverty-related expenditures and review the broader regional distribution o f public spending to identify ways to possibly improve alignment o f expenditures with the Government's policy goals. 13. To sustain growth and poverty reduction, further improvements are called for in budgetingto support naturalresources and environmentalgovernanceand developmentof the agricultural sector. Implementation o f strategies recently adopted by the Government to address institutional and policy challenges in those sectors are expected to result in predictable and increased allocation o f public resources as well as improved transparency and accountability o f their management. 14. The efforts to improvepublicresourceallocation and to sustainand expandpoverty reducing expenditure are expected to continue contributing to the reduction in Ghana's poverty headcount. The findings o f the 2005/06 Ghana Living Standards Survey indicate that the poverty headcount has fallen by 11 percentage points since 1998/99, reaching 29 percent in 2005/06, down from 39 percent in 1998/99. Projections based on these findings indicate that Ghana could reach the Millennium Development Goal o f halving the 1990 poverty rate before 2015. PublicFinancialManagement 15. The Government continuesto make encouragingprogressin implementingits wide rangingprogramof strengtheningpublic financialmanagement(PFM), the Short-Term and Medium-Term Action Plan (ST/MT AP. Budget formulation has been improved by revising the budget timetable to enable earlier tabling o f the Estimates and thus the passage o f the Appropriations Bill prior to the start o f the new financial year, with a view of allowing a more orderly implementation o f spending plans. There i s now increased consultation with stakeholders in budget formulation, more comprehensive information in budget documents, and encouragement o f Ministries, Departments and Agencies (MDAs) to undertake procurement planning. To sustain the momentumbudget submissions should be accompanied byprocurement plans, andrequests for budget releases shouldbe accompanied byprocurement clearances. 16. Overall, recent developments are likely to have a positive impact on PFM performancewhen the Governmentdecides to conductthe next PEFA assessment. Insome areas (e.g. procurement, tracking resources received by front line service units, timely approval o f the budget) notable progress has been achieved. However, inother areas (comprehensiveness of CAGD reports, variations in budget implementation from commitments through actual expenditures, timeliness of legislative scrutiny o f external audit reports), potential gains might not be realized inthe absence o f renewed efforts. 17. Reducing the deviation between budgeted and actual expenditures is essential to improve budget credibility. Strengthening the MTEF, better reporting on the use o f contingency by M D N l i n e item both at the appropriation and budget execution stages, particularly o f personal emoluments, and bringing into line with the budget calendar the public xii sector wage negotiations would assist the government to better deliver on the budget policy statements. 18. The review welcomes the Government's decision, in mid 2007, to commission a report on deepening the MTEF process and encourages the authorities to take further action. Although the MTEF assembles a mass o f information on program activities and expected results, little subsequent use i s made o f this information. Budgeting i s still, at bottom, incremental, with MDAs petitioning the Ministryo f Finance and Economic Planning (MoFEP) for additional funds instead o f taking responsibility for managing their portfolios within an aggregate fiscal strategy and collectively agreed priorities. A fresh look at how the Medium- Term Expenditure Framework (MTEF) could make a more effective contribution to policy making, budget preparation and implementation could yield dividends ineffectiveness. 19. Ambitious domestic revenue targets in the coming years are predicated on significant growth projections for GDP and substantial efficiency gains for the revenue agencies from greater integrationbetweencomputer systems. While GDP growth prospects are likely to continue to be strong, particularly if new investments in the power sector come on stream timely, experience from other countries suggests that significant gains from greater efficiencies in tax administration (particularly from technological improvements) are likely to take longer to materialize than currently envisaged. A fiscal strategy based upon rapid domestic revenue growth will require a downward adjustment in expenditures during the year if revenue underperformance occurs. Achievement o f revenue targets will also require continuous and sustained efforts to strengthen tax enforcement, timely recover tax arrears, and widen the tax base. 20. Renewedefforts are called for to address weaknesses in the execution of the budget. The Review notes the Government's continuing efforts to improve the commitment control system, to strengthen cash management, and to facilitate payments through decentralized treasuries. The actions aim at leading eventually to a Treasury Single Account (TSA), andto the further implementation o f the Budget and Public Expenditure Management System (BPEMS). While these efforts are strongly supported, the review encourages Government to take hrther action to address factors contributing to variations and delays in budget execution from commitments through actual domestically financed expenditures. Improved budget execution o f donor-financed project implementation i s also required to support the country's efforts to accelerate growth and reduce poverty. 21, Public expenditure tracking surveys (PETS), covering the health and education sectors, will allow learning more about how service delivery is affected by the budget executionprocess. The two PETS expected to be completed in the first halfo f 2008, will help identify factors contributing to spending inefficiencies and provide recommendations to improve value-for-money inthese sectors. 22. Timely completion of the implementation of the Integrated Personnel and Payroll Database (IPPD2) is a top priority. Since October 2006 the IPPD2 has been running the central payroll for MDAs, with 8 pilot M D A s having on line access to their payrolls. Given that the system's authorizing environment to hire staff into public service proved to be weak, this hnction has been re-centralized. Migration o f subvented agencies to IPPD2 is currently under X l l l ... way.7 Inview o f some teething problems inrunningthe payroll ina reliable and timely manner, the Government commissioned an audit o f IPPD2 and it i s important to implement measures to address data inaccuracies, the robustness o f controls, and the capacity o f systems (servers, back- up facilities, underlying documentation) to ensure the adequate operationality o f the payroll. To validate payroll information and help strengthen its administration, the government has recently completed a census o f public servants. As a more capable system, IPPD2 has the potential to develop human resource management beyond payroll administration. This will require coordination o f the various agencies responsible for different branches o f the public service, for example the (Office o f the Head o f Civil Service (OHCS), and GES. Inturn, the development o f the Human Resources dimension o f IPPD2 will depend on the evolution o f the public service reform program over the medium term. 23. Timelinessof monthlyfiscal reportinghas improvedduringthe second half of 2007. Sustaining recent progress, the Controller and Accountant General Department (CAGD) issued the October 2007 on November 23, 2007. This i s the first monthly report to be issued within four weeks o f end o f month, a good practice standard (PEFA). Three challenges lie ahead. To improve the comprehensiveness o f those reports by including externally financed project expenditures by MDA and Internally Generated Funds, probably on a quarterly basis. To ensure data accuracy through careful reconciliation before reports are released. To eliminate the current gap (six months) and start disclosing monthly CAGD reports to the wide public within one month after their completion, as established by internationally accepted good practice standards. 24. Followingthe passage of the InternalAudit Agency Act in 2003, progresshas been encouraging, with the establishment of Internal Audit Units (IAUs) in MDAs and Metropolitan, Municipal and District Assemblies (MMDAs) and the submission of better quality reports. Audit Reports and Implementation Committees (AFUCs) have been created in spendingministries and departments, under the Act, with responsibility o f following up internal and external audit findings. ARICs, however, should support, not detract from, the responsibility o f the Vote Controller for ensuring that votes are spent properly, and financial regulations are adhered to. The relationship with the Ghana Audit Service (GAS) could be further strengthened, to ensure that standards adopted by the internal audits are sufficiently robust to permit the external auditor to place reliance on their work. The review welcomes I A A ' s decision to launch the ongoing public sector fraud risk assessment across MDAs which aims at identifying positive actions for fraud prevention. 25. Progress continues to be made in clearing the backlog of audits and submitting audited annual accounts within the statutory deadline. Financial statements o f the Consolidated Fund and o f MDAs are current and audited, but delays continue with regard to public enterprises and other statutory bodies, as well as the District Assemblies Common Fund (DACF). The review also notes the need for effective follow-up by the Executive o f the findings o fthe Auditor-General's annual report. 'Subvented agencies are public institutions, other than a government department or public corporation, that receive a significant portion of their funding from the budget to fulfill a public purpose. Typically, they enjoy operational autonomy to carry out their statutory or administratively set mandates, subject to government guidelines on management. Staff working insubvented agencies are part ofthe public service. xiv 26. Given the Government's commitment to increase planned spending to modernize and expandthe country's infrastructure,due emphasis is beingplacedon the management of public investment. To ensure that borrowed and domestic proceeds are applied to carefully selected high return investment projects, under MoFEP's leadership, it will be important to consolidate and re-define common procedures for the identification, costing and management o f investment projects, make routine the preparation o f annual procurement plans to speed implementation and improve the link between the budget and the MTEF with better information on the multi-year costs o f projects. The Review notes and supports MoFEP's intention to make the Project and Financial Analysis Unit (PFAU) an effective highlevel screening mechanism for projects financed by resources raised chiefly from international capital markets. PublicProcurement 27. A strong link ties the efficiency of the national procurement system to the achievement of development goals stated in the GPRS 11. For 2007 the magnitude o f resources involved in public procurement in Ghana i s estimated at over 17 percent o f GDP and around 80 percent o f tax revenue.* A transparent and efficient public procurement system offers numerous benefits including better value for money, encouraging investment, innovation, and reduction o f corruption. In addition to reducing costs and ensuring cost-effective delivery o f services, infrastructure, and public goods, good management o f public resources through an effective procurement system also increases the public's confidence in governance. 28. Further alignment of Ghana Public procurement systems with international good practices would help move forward the harmonization agenda and encourage the widest possible use of the national system by donors. A sound and effective country procurement system gives assurances to development partners that national procurement procedures are suitable for use in donor funded projects and should contribute to minimizing the intensity o f supervision. Also important for non-project lending (budget support), since development partners' and government's own funds are fingible, sound national procurement systems mean that all funds, including those from donor sources, are less at risk. 29. Recognizing, the importance of public procurement, Ghana has been an active member of the OECD/DAC ProcurementRoundtable,since its inception in 2003. As well as contributing to OECD/DACys global assessment tool, the "Methodology for Assessment o f National Procurement Systems", the Government developed, on its own initiative, a version for use in Ghana, the Public Procurement Model o f Excellence (PPME). The Government piloted the tool in 2005 and the Public Procurement Authority (PPA) used it for a large scale assessment o fmore than 200 entities in2006. 30. Ghana has also taken a proactive stance in reforming its public procurement system. The country has made commendable progress inimplementing the reforms outlined in the 2003 Country Procurement Assessment Report (CPAR). It has passed a new procurement law, made Ministries, Departments and Agencies (MDAs) accountable for open, competitive and transparent procurement under the oversight o f a new Public Procurement Authority, created an appeals and complaints mechanism, promoted procurement planning, initiated capacity building 8Volume 11, Chapter 1. xv at all levels inpublic procurement, and developed its own public procurement performance and compliance assessment tool, the Public Procurement Model o f Excellence (PPME). 31. The Review found that overall the PPME is an innovative and valuable tool to monitor public procurement performance and practices at the entity level. Further improvement o f the model will require refining the Key Performance Criteria (KPC) and disclosing the average rating o f each KPC publicly, better sampling o f procurement units and contracts, modification o f some formulae, and enhance quality control. A particularly important aspect i s the need to focus on big spenders and high volume contracts to ensure value for money and take into account the risk mitigation perspective. Also, the joint Review has concluded that the operational relevance o f the third component o f the PPME, the Baseline Indicator System (BIS) report, could not be clearly identified and would be discontinued. To further improve the impact o f the PPME-tool, future self assessments would greatly benefit from considering the above actions. 32. The goal of the 2007 detailed procurement assessment is to support the Government's reforms and to establish a baseline against which future progress in the quality and performance of the country's public procurement system can be measured. Working with counterparts from the PPA, MoFEP, the GAS and the Internal Audit Agency in a joint assessment, the 2007 ERPFM applied the OECD/DAC methodology to Ghana's national procurement system. It follows the 2006 ERFPM finding that it would be critical to continue strengthening public procurement through implementation o fthe Public Procurement Authority's reform strategy. The OECD/DAC methodology scores national systems, on a 0-3 scale, against 12 indicators and 54 sub-indicators, organized into 4 pillars. 33. Overall, the joint assessment concluded that the Ghana public procurementsystem i s above a~erage.~As illustrated by the Figure 1.1 below, the strongest component of the country's procurement system i s the robust legislative and regulatory framework (Pillar I) which is well within the norms with an average score o f 2.3. All other Pillars reach an average score o f 1.8. Taking average as 1.5, the mid-point of the OECDDAC scale. xvi Figure1: Ghana's PublicProcurementSystem: Score Aggregatedby Pillar LegislativeFramework Integrity& Institutional& Mment Capacity +Maximum score Operations and Markets 34. In spite of progress,challenges remain.At the indicator level, to meet the OECDDAC standards, improvements are required in the areas o f further linking procurement with public financial management, enhancing the institutional development capacity, improving the efficiency o f procurement operations and operational practices, addressing procurement-related issues incontrol and audit systems andmakingoperational the appeals mechanisms. 35. The review concludes that Ghana has laid secure foundations for its public procurement reforms. There are challenges, however, in embedding the new processes in public bodies and building the capacity o f both purchasers and vendors. The GOG plans to further strengthen the public procurement system are outlined inboth the PPA's annually revised three year strategic plan, and also as components o f the MoFEP's Short Term and Medium Term Action Plan for PFM. The thrust o f both these programs i s to mainstream the new processes across the whole o f the public sector, consolidate the oversight and appeals mechanisms, build capacity and strengthen information systems. The Review supports these plans, noting that the Government intends to amend the Public Procurement Act to improve the workings o f MDA tender review boards, and that further actions are necessary to strengthen the independence and capacity o f the Appeals and Complaints Panel, which has received petitions, but not yet announced its findings. 36. The total cost of the Government's action plan for 2007-09 is estimated at Cedis 70 billion(about US$7.7 m) and US$2.5 million haveyet to be mobilized. The PPA reports that "inadequate and irregular" funding has in the past hampered implementation o f reforms. Clearly, external donor funding is an implied prerequisite for implementation o f ongoing reforms and i s expected to cover half o f the budget. The United Kingdom's Department for International development (DFID), which has supported public procurement reform in Ghana since 2004, has agreed to provide about US$1.8 m to fund PPA's strategic plan for the period Jan 2007-Dec 2008. The support will among other things, focus on strengthening the PPA secretariat and its xvii monitoring and evaluation capacity. In addition an agreement has been signed inmid September 2007 to fund US$2.3mYunder a compact with the MillenniumChallenge Corporation. The five- year compact has a specific provision for funding for "development of procurement professionals". Overall, a gap o f US$2.5 million has yet to be funded to cover actions such as short term training US$1.7 million, PPME roll out to 600 entities and data base management (US$0.5 million) and other activities such as the processes for the amendment of the public procurement Law (Act 663) and the regulations, mainstreaming public procurement into PFM and assisting local businesses to be more competitive (US$0.3 million). Table 3: ERPFM2007 ProposedKey Measuresand Sequencing - Challenges identifiedbythe ERPFM Recommendation Sequencing Need to better control the wage bill and Implementcorrective measuresto follow up on address identified weaknesses inpayroll findings from census o fpublic servants and IPPD2 management and administration audit, establish back up system and finalize X migrationo f personnel informationo f subvented agencies onto IPPD2 Needto improve the Include external financed project expenditures and comprehensiveness, quality and IGFsby MDA inCAGD reports and improve data timeliness o f in-year and end-year accuracy by reconciling data before report reporting on budget implementation finalization Ensuretimely public disclosure ofmonthly CAGD reports on MoFEP website or Gazette Weaknesses inthe budget execution Address factors contributing to variations and delays process inthe process fromcommitment to actual expenditures Improvebudget execution o f donor commitments, particularly project funding Needfor strengthened processesto plan, Implementrecommendations fromaudit ofBPEMS develop and manage IFMIS Continue revenue mobilization efforts Implement measures to meet ambitious revenue targets Address issue o f significant budget Ensureconsistent reporting on the use of deviations contingency by MDNline itembetween appropriated and executed budgets, particularly o f personal emoluments, andbring forward public sector wage negotiations Adopt short and medium-term measuresto deepen MTEFprocess xviii Challengesidentifiedby the ERPFM Recommendation Sequencing Quick Medium win I term Strengthenthe pro-poor focus o f public Increase further poverty-related expenditures, spending including by targeting regions with higher poverty incidence Deepen knowledge about funding gaps faced by regions with highincidence o f poverty and efficiency o f public spending at sector levello Continue strengthening o f capacities for External audit: identify potential cost savings to external and internal audit enable GAS' limited resources to be deployed more effectively Internal audit: continue to strengtheninternal audit practices andbuildcapacities inboth IAA and across MUS Need to ensure sustainable development Contain energy subsidies while government o f the energy sector implements investments and reforms to bridge the gap inpower supply and to remove bottlenecks in electricity transmission and distribution Need to ensure value-for-money for all Establish PFAU, ensure robust procedures and public investment resources strengthen institutionalcapacities for planning, I x prioritizing and managingpublic investment resource Supplementing Procurement Legal Seek approval o f the proposed amendments o f Act Framework 663 and formalize the regulations Improving Procurement Assessment Reconsider strategy, preparation and conduct o f Framework future self-assessments (increasing focus o n risk factors, and quality assurance) and refine the PPME tool prior to rolling out assessment later in2007. X I procurement Make operational web-based procurement planning tool inJanuary 2008 X I Increasing Institutional Buildup sustainable procurement training programs X Development Capacity within local training institutions Establishnational standard certificationsystem X Strengthening Procurement Execute the short term training program launched in Operations and Contract August 2007 Administration Implement the recently approved career path for I procurement professionals I x I Establish efficient mechanisms to delegate authority for procurement decisions (amendment to Act 663) loBuildon PETS and other studies. xix r l x 111_ 0 BuildingCapacity o f Public Strengthen private sector capacity to successfully Procurement Market compete for government contracts Strengthening internal and external Consolidate the Appeals and Complaints Panel, scrutiny of procurement decisions strengthen its independence andpublicize the number of existing complaints that have been addressed Strengthenprocurement expertise among audit institutions Publishregularly the Procurement Bulletin and X supplement the PPA website with information on contract opportunities, contract awards and procurement plans Note: Quick Win - completion within 12 months. Medium-Term - completionwithin 1-3 years. Table 4: Summary of BaselineScores Ghana'sPublicProcurement System - IIndicator I Public procurement legislative and regulatory framework achieves the agreed standards and - I uirements and when a pared for certificationof budget execution and for xx Indicator 9 The country has effective control and audit systems - I A legal framework, organization,policy,and proceduresfor internaland external control 1 lndiciitor 10 Efficiency of appeals mechanism. - j Decisionsare deliberaredon rhe Dasisof available inforination, and the final decision can be reviewedand ruled upon by a body (or authority)with enforcementcapacity 1Oa under the law. The complaint reviewsystem has the capacityto handle! complaints, efficiently and 10b means to enforcethe remedy imposed. The system operates in a fair manner,with outcomes of decisions 1:ialancedand 1oc IIIIIIjustified on the basis of available information. xxi Information is published and distributed through availablemediawith support from I,I,. 3-i Special measures exist to preventand detect fraud and corruption in public procurement. Stakeholders(privatesector, civil society, and ultimatebeneficiariesof I procuremenffend-users)support the creationof a procurementmarket known for its I 2e integrity and ethical behaviors. The country should have in placea secure mechanismfor reportingfraudulent, corrupt, 2f or unethical behavior. Existenceof Codes of ConducffCodesof Ethics (...)that also providefor disclosurefor those in decision making positions. xxii 1. INTRODUCTION 1.1 The 2007 External Review o f Public Financial Management (ERPFM) in Ghana is the fourth in a series o f annual assessments o f progress in Ghana by the development partners who are providing budget support for the Government's development program. The work has been undertaken by a team led by the World Bank, including specialist consultants funded by the UnitedKingdom and Denmark. 1.2 The primary focus o fthe reviews is to provide the Multi-Donor Budget Support (MDBS) partners an up to date picture o f how the budget is being spent and how public financial management systems in Ghana have been evolving. In doing so, the reviews are expected to provide constructive suggestions to the Government on the further strengthening o f financial management systems and the alignment o f spending with economic policy goals. In this way, the ERPFMis intendedto be both fiduciary and developmental. 1.3 After this Introduction, Chapter 2 o f the 2007 ERPFM looks at the performance o f the economy in 2006 and recent overall fiscal developments. It then examines the 2006 budget outturn inmore detail, and particular attention i s paid to the implementation o f Ghana's Poverty Reduction and Growth Strategy (GPRS2). 1.4 Chapter 3 addresses Public Financial Management (PFM), starting with some cross- cutting issues such as budget credibility, predictability and transparency. It next reviews priority areas o f the Government's Short Term and Medium Term Action Program ( S T M T AP), and concludes by looking at the Government's plans to strengthen the screening o f capital investment projects. 1.5 Chapter 4 focuses on Public Procurement. It summarizes the findings o f the Public Procurement Assessment Report by reviewing and concluding with comments on the Government's own assessment tool, the Public Procurement Model o f Excellence (PPME), together with recommendations arising from the application o fthe OECDDAC Methodology for Assessment o f National procurement Systems. It also discusses the challenges facing Ghana's public procurement system, the Government's reform program and looks at institutional issues. The comprehensive and detailed Public Procurement Assessment Report i s attached as Volume I1o fthe 2007 ERPFM. 1.6 Attached to this Volume, are Annexes which: (i) the estimates o f the Budget present Deviation Index (Annex 1); (ii) elaborate in more detail on issues o f transparency o f budget information (Annex 2); and (iii) provide the statistical data that formed the basis o f this review (Annex 3). 1 2. REVIEW OF ECONOMICPERFORMANCE COUNTRY ECONOMIC SITUATION AND MACRO-ECONOMIC OVERVIEW Recentdevelopments 2.1 Ghana's economic performance continues strong, notwithstanding disruptions in power supply in the latter part o f 2006 that persisted into the first half o f 2007. Economic growth is projected to reach 6.3 percent in 2007, down slightly from the 6.4 percent real GDP growth recorded in 2006. The recent growth performance reflects a skewed sectoral breakdown, however, with output growth concentrated inmining (up 30 percent), in finance, insurance, and real estate (up 15 percent) and in construction (up 11 percent), greatly outweighing the output declines in manufacturing (down 2.3 percent) and electricity and water production (down 22 percent). There was also a stimulus provided by fiscal policy, with Government services rising by 6 percent, and yieldingan additional 1percent o freal GDP growth. 2.2 There are sound economic fundamentals behind the recent growth performance, with the country ranking among the top ten reformers in the last two Doing Business Reports. There were reductions reported in the time required to register new businesses and to register property, as well as in the ease o f trading across borders. Access to credit by the private sector was also made easier, as measured both by the Doing Business report and by the increase in the private sector's share intotal domestic credit. This positive business climate has translated inturn inthe strong performance o f exports and inthe country's ability to draw on foreign savings, either by tapping the international capital market, attracting external investors to its domestic bond market, and continuing to receive large remittance inflows from Ghanaians living abroad. Exports are projected to rise by over 10 percent in2007, buoyed by high commodity prices for gold, as well as the good performance o f cocoa andnon-traditional exports. Net capital flows are projected to reach US$2.0 billion by end year, adding to the expected US$2.3 billion inflow o f transfers (private andofficial) (see Tables 1and 2 o f Executive Summary). 2.3 The good performance o f exports and the net capital inflows have not been enough to reverse the weakening in the country's external position, however. End-2007 foreign currency reserves are projected to reach 2.7 months o f import coverage, down slightly from the 2.8 months inimport coverage at end-2006. Since about one-third o f the projected end-year reserves are unused proceeds o f the recent Eurobond issue, in the absence o f these unused bond proceeds the import coverage would have fallen to 2.1 months. The weakening inthe country's external position reflects primarily the recent surge in imports, which are projected to rise by about one- quarter on strong increases in oil and non-oil imports. Oil imports have risen in line with the increase inNigerian Bonny crude oil prices (the benchmark crude oil price for Ghana's imports). As a result, the current account deficit i s projected to widen further to 13.5 percent o f GDP (including official transfers), up fromjust under 10percent o f GDP in2006." 2.4 The widening o f the current account deficit reflects in turn the weakening o f the country's fiscal stance. Since the second halfo f 2006 government expenditures have risen faster "Thecurrent account deficitexcluding officialtransfers isprojectedtoreach 16percent ofGDPbyend-2007, up from 13 percent of GDP at end 2006. 2 than revenue collections, leading the overall fiscal deficit to reach 7.5 percent of GDP in2006, which i s projected to stay inthe 7.5 to 8.0 percent o f GDP range in2007 (Table 2.1 below). The main drivers o f government spending have been the public sector wage bill, reaching almost 10 percent o f GDP as a result o f pay awards that triggered further requests for pay increases within the public sector. Energy sector subsidies are also one o f the factors placing pressure on the budget, as budget subsidies needto bridge around a one percent o f GDP difference between the revenues from end-user utility tariffs and the actual cost o f power generation and distribution. While the utility tariff adjustment announced by the Public Utilities Regulatory Commission (PURC) on October 19, 2007 was an important first step in bridging this gap, the ever rising crude oil prices ininternational markets continuously shift the goal o f full cost recovery. Figure2.1: BudgetExecutionofPovertyReducingExpenditures,TotalandbyBroadExpenditure Categories,January-September 2007 (In PercentofPlannedBudget) O t h e r P overty Expenditure RuralElrectr Expenditure Feeder R o a d s Expenditure R u r a l Water Expexpenditure P o v e r t y F o c u s e d Agric Expenditure PrimaryHealth Care Expenditure Basic Education Expenditure Tot a lPoverty Reductio nExpenditure 50% 75% 100% 125% 150% 175 Source: Ghanaian authorities; National Expenditure Tracking System(NETS); World Bank staff estimates. 2.5 Notwithstanding the need to accommodate higher spending on energy sector subsidies, Government expenditure maintained its pro-poor orientation. Poverty reduction expenditures are projected to end 2007 at around 10.4 percent o f GDP, down slightly from the 10.5 percent of GDP recorded in 2006 but up from 8.5 percent at end-2005. At the current levels, poverty reducing expenditures account for about for 40 percent o f o f total primary domestically financed expenditures. The budget execution o f these poverty reducing expenditures over the first 9 months o f 2007 was very uneven, however (Figure 2.1). There were higher rates o f budget execution in some programs with large payrolls, such as primary health programs, as well as in priority investmentprograms, such as rural water and feeder roads. Spending on basic education programs and poverty focused agricultural programs lagged behind, however. The budget execution rate inbasic education programs was just under 100percent, while the execution rates for poverty focused agricultural programs was just under three quarters. In the case o f basic education programs this is an issue o f concern because payroll expenditures account for a large share o f the overall program. Overall low levels o f budget execution suggest that the budget execution o f other expenditure items might have been even lower. Inthe case o f poverty focused agricultural programs, low levels o f budget execution likely reflect lower spending by regional units. 3 Table 2.1: Summary CentralGovernmentBudgetary Operations-2002-2007 (Yo of GDP) 2002 2003 2004 2005 2006e 2007p Total revenue and grants 24.3 27.3 30.1 29.1 26.8 27.2 Revenue 23.2 22.6 23.8 23.8 21.6 22.7 Tax revenues 21.7 20.6 21.7 20.6 19.6 21.7 Direct taxes 6.6 6.7 6.6 6.7 6.0 6.5 Indirect taxes 10.3 9.7 10.3 9.7 9.0 9.5 Trade taxes 4.8 4.2 4.8 4.2 4.6 5.7 Non-tax revenues 1.5 2.0 1.5 2.0 0.8 1.o Grants 3.1 4.7 6.4 5.2 5.2 4.5 Total expenditure 26.1 28.8 33.3 30.7 34.5 35.0 Recurrent expenditure 20.0 19.8 20.9 18.7 20.4 22.4 N o n interest 13.8 13.6 16.6 15.1 18.3 19.2 Wages and salaries 8.5 8.4 8.7 8.5 9.6 9.6 Other 5.4 5.2 7.8 6.6 8.3 9.6 Interest 6.1 6.2 4.3 3.6 3.3 3.4 olw due on domestic debt 4.5 4.9 3.2 2.8 2.4 2.5 olw due on foreign debt 1.6 1.2 1.2 0.9 0.9 0.9 Capital expenditures 6.1 8.9 12.4 12.0 12.2 12.6 Domestically financed capital 2.7 4.6 6.4 5.9 7.8 7.7 expenditures Foreign financed capital 3.4 4.4 6.0 6.1 4.5 5.9 expenditures Overall balance -6.8 -4.4 -3.6 -3.0 -7.5 -7.8 Memorandum items: Total primary domestically financed 16.6 18.2 23.O 21.0 26.7 25.7 expenditures ' Domestically financed poverty 4.8 6.5 7.7 8.5 10.5 10.4 spending (GPRS definition) Domestic primarybalance 2.4 2.3 0.7 3.4 -4.8 -5.6 Total public debt 124.5 120.3 93.4 77.1 42.4 48.9 Domestic public debt 25.0 21.3 20.7 17.9 20.0 25.9 Sources: International Monetary Fundand World Bank staff estimates (e) and projections (p). 1) Total expenditure less interest payments and foreign financed capital expenditures. 2.6 The economic developments on the fiscal and external fronts have been immediately reflected in interest and exchange rates. Between early September and late November 2007 interest rates on 91-day treasury bills have risen by three-quarters o f one percent, while the exchange rate (cedis to U S dollar) has declined by just over 2 percent during this same period (against an already declining U S dollar). At its meetinginmid-November the Bank o f Ghana's Monetary Policy Committee was quick to react to these developments, raising its prime rate to 13.5 percent, up from the 12.5 percent it had been for the last year, interrupting two and a half years o f measured decline in interest rates. These developments are important because foreign investors currently account for between 20 to 25 percent o f the domestic bond market, and are more likely than domestic investors to be more responsive to these developments. 4 Box 2.1: Ghana's Non Concessional Borrowing On September 27,2007 Gha ssued a US$750 milli Eurobondon the rnational capital market at a fmed coupon of 8.5 per with a ten-year bu payment of the ipal. The Government of Ghana also signed, on September 25, 2007, a U S 2 9 2 million financing agreement with the China Eximbank to be used toward the construction o f the BuiDamwith an annualpower generation o f 950 GWh and a proposed installed capacity o f 400 MW. This loan from the China Eximbank carries an average interest rate o f 6.1 percent, with a 17 year amortization period, and 5 years of grace. The prospectus for the bond states that the use o f the proceeds will be for infrastructure investments, including, but not limited to, energy and transport. This statement is consistent with the 2007 supplementary budget, which allocates about US$357 million from the bond proceeds to energy investments, with another US$13 millionset aside for road sector investments. Together these two sets o f investments would add to 2.5 percent o f projected 2007 GDP), or 50 percent o fthe proceeds o fthe bondissue. The Ghana GRPR IIenvisagesthat funding from domestic or concessionalsources of financing would be insufficient to finance the entire development plan. Following the October 2005 Consultative Group (CG) meeting, the Government communicated to the Bank that it would seek additional financing from non- concessional sources to meet the country's growth targets and achieve the MDGs. It indicated that the costs o f needed investments inenergy androads could not be met from domestic or concessional resources. This became more pressing as the energy crisis deepened in late-2006 and early 2007. The decline in water levels at the Akosombo dam reducedpower supply capacity by 25-30 percent, making even more urgent the needto scale up investments to restore power supply capacity to the levels prior to the crisis andensurethat energy supply would increase inlockstep withprojectedreal GDP growth. The new borrowing increasesinthe immediate short runthe country's debt service ratios to GDP and exports of goods and services by about one-fifth. By the beginning ofthe decade these increasesare expected to decline because o f sustained real GDP growth and export g o April 2007 joint IMF- World Bank DSA had already envisioned the possibility o f non-concessional borrowing, indicating that Ghana faced a moderate risk of debt distress, albeit on the low side. The decision to bring all the non- concessional borrowing forward into 2007, rather than spreading it over a three year period (2007-2009), and to add the loan from the China Eximbank now places Ghana clearly in the moderate risk category. Although the baseline scenario remains well within the indicative policy thresholds, once the stress tests are applied, the risk o f debt distress clearly becomes moderate, with no qualification. Inthis second scenario, the stress tests for the NPV o f debt to exports andNPV o f debt service to exports breach their respective indicative thresholds earlier in the projection period, and the results of the baseline scenario converge asymptotically toward the indicative policy threshold for the NPV o f debt service to exports." EconomicOutlook 2.7 The outlook for 2008 is for real GDP growth to reach 7.0 percent, with economic growth driven by the good performance inthe mining sector, highpublic sector expenditure, and strong public and private sector investment activity (including new power generation investments). This outlook is contingent on continued highprices for Ghana's export commodities, and actions on four fronts: (i)carrying out the Government's planned investments in the infrastructure, especially the increase in thermal-electric power generation capacity and the upgrading o f the '* Theassumption under this second scenario is that the large scheduled amortization o f the US$750 million (bullet) Eurobond in 2017 i s rolled over by a new bond carrying the same interest rates and a ten year amortization period. Incase the bullet amortization were not to be rolled over at the due date, there would be a one time increase inthe NPV of debt to exports and in the debt service to export ratio that would breach their respective indicative thresholds. 5 power transmission system; (ii) sustaining progress on the private sector development (PSD) agenda; (iii) accelerating overall exports, including by reaching a consensus on the way forward on the successor to the 2000 Cotonou agreement with the EU, and by taking steps to manage potential oil revenues; and (iv) taking actions aimed at enhancing the efficiency o f investment and raising productivity throughout the economy. While cocoa exports have seen an almost 90 percent increase in volume since the beginning o f the decade, it has been the increase inprices for cocoa and gold that have been drivingthe increase in exports revenues. The prices for these two commodities have risen considerably from the low levels earlier in this decade, increasing by 60 and 125 percent for cocoa and gold, respectively, over the last 7 years. Although it appears that the prices for these two commodities might have reached a peak, if they remain at their presently high levels, these exports should continue to ensure sustained foreign currency revenues for the foreseeable future. 2.8 Also, the firm implementation o f the planned investments inpower generation capacity i s critical to allow annual real GDP growth rates to gradually accelerate towards 7 percent. This outlook assumes that power supplies are raised above pre-load management already in 2008. This increase in capacity is projected to result from a combination o f improvements in the financial position o f the power utility companies, increased water levels at the Akosombo dam, and new thermal-electric generation capacity, including those to be installed to tap gas flowing from the West Africa Gas Pipeline (WAGP). Tariffs would need to be adjusted accordingly to reflect higher rates o f returnrequired for thermo-electric generation. 2.9 The drive to increase infrastructure investments should be part and parcel o f the actions aimed at enhancing the efficiency o f investment and raising productivity throughout the economy. This is important because at present growth is being driven primarily by factor accumulation, as reflected in a rising investment to GDP ratio, with increases in productivity having only a secondary effect. This trend cannot be sustained, however. Growth driven exclusively by capital accumulation looses momentum because o f declining marginal productivity o f capital. Sustained increases in aggregate investment are consistent with long term growth, however, if coupled with improvements in productivity, since the causality runs from increased productivity to opportunities for investments that, in turn, lead to higher growth rates. 6 Box 2.2: Highlightsof the 2008 Budget Proposal" The theme of the 2008 budget statement is `a brighter future' based on peace, security and democracy. In addition, there is the potential of future oil revenues; and the continued strong economic growth, leading to progress toward achieving the MDGs, as well as actions aimed at prevailing over the energy crisis and other infrastructure bottlenecks. This `brighter future" budget i s predicated on real GDP growth accelerating to 7.0 percent (17 percent growth innominal terns), translating into 24 percentincreaseintax revenues. When extraordinary revenuesare added, overall domestic revenuesare projectedto increas 9.2 percentof GDP, up from aprojecte of23 percentof Donor funding for the budget is cted to rise by 20 percent, including percent increase in ver the projected outtum for 2007 40 percentincreaseinproject andprogram loans. The proceeds from divestitures and borrowing are then included under total revenues, providing GH#276 million (1.7 percent of GDP) in divestiture receiptsi4 and GH$516 million (3.2 percent of GDP) from the proceeds from foreign borrowing (adding to over 10 percent o f the budget). The greatest revenue innovation is the introduction o f a one-pesewa per minute excise duty on mobile phone call. The new excise duty replaces the import duties and import VAT currently imposed on imported mobile phones, and i s designed as "a dedicated source of funding" for the National Youth Employment Program (NYEP). Total expenditures under the 2008 bud osal are set to increaseby 17 percent,rising by over GH#1billion in part due to exceptional d There are some items in the 2008 budget. (1.5 percentof projected 1.6 billion for personnel em0 constantat 9.6 percent. Itis important projections still implya 13 percent nominal increase inthe public sector payroll over the 2007 budget outtum, and a 4 percent real increase. The planned decline to 31 percent of the 2008 budget share spent in poverty reducing expenditures reflects primarily the sharp rise in share o f public investments (both foreign and domestically financed), which are set to more than double as a share of GDP, risingfrom just under 5 percent to over 10percent. Two other expenditure items that are set to rise are the expenditures of the District Assembly Common Fund (DACF) and the interest paid on domestic debt. The increase in spending of the DACF reflects the increase in the Government's contnbution to the fund from 5 to 7.5 percent of tax revenues, leading to an additional GH#71million in expenditures bylocal governments, while the rise ininterestpaymentson public debtresult fromthe rise inthe debt stockto GDP to 49 percentbyend-2007, up from 42 percent at end2006. Which are the new expenditure programs In the 2008 budget proposal? The bulko f the n 2008 budget go to the Ministry of Energy, which eceive an additional GH#495 million GDP) over its 2007 budget all~cation.'~Also, the try of Health receives an additional or the equivalent to a 33 percentrise over the 2007 budget. The Ministry of Education receives an additional GH#133 million, or a 12percent increaseover the 2007 budget, while the Ministry of Transport receives an additional GH#l18 million, in large part to fund a major initiative to improve feeder roads. Lastly, the Electoral Commission receives an additional GH#4million, raising its budget for the 2008 election to GH#36million. Issues to monitor during the implementationof the 2008 budget are the performance of the economy and the realization of the revenue projections. The budget proposal is predicated on the sustained increase in real GDP growth, bolstered primarily by high commodity prices (especially gold), the stimulus of government spending, and the ongoing construction and banking booms. The revenue projections included in the budget are also very upbeat, notwithstanding the revenueshortfalls experiencedin 2006 and2007. Tax revenuesare expectedto grow by 24 percent over 2007 levels (higher therefore than the nominal GDP growth of 17percent). Also, despitethe underperformanceof official program andproject grants in 2006 and 2007, the 2008 budget i s predicated on large increasesinthese revenue l3With effect from July lS`, the cedi (6) was re-denominated and the name of the national currency became 2007, Ghana cedi (GH$) and Ghana pesewa (Gp).The equivalencies are as follows: GH$ 1.00 = $10,000.00 and 1Gp= $100.00. l4Divesture receipts are projected to come primarily from the reduction in State participation in: the Ghana Oil Company (GOIL), the Ghana Telecom Limited Company (Ghana Telecom), an the Western Telesystems Company (Westel), although some o f the receipts from the divesture o f Ghana Telecom are expected to flow into the 2007 budget and most (ifnot all) of the receipts from the divesture o f Westel are expected already in2007. Note the increase in budget allocation to the Ministry o f Energy includes GH$360 million from the proceeds o f the Eurobonds and from divestitures. 7 BUDGETARY OUTCOMES 2.10 Reversing a positive trend over the last few years, overall fiscal performance deteriorated considerably in 2006 (Table 2.2), due primarily to relatively large public sector pay increases (particularly in the health sector) and to the re-emergence o f energy subsidies, exacerbated by lower than expected domestic revenue receipts. Although 11 percent higher than inthe previous year, tax revenue collections were around 7 percent lower than the amount projected in the budget (Table 2 o f Statistical Annex). This shortfall occurred primarily with taxes on imports, particularly VAT and taxes on international trade. A higher than planned level o f exemptions and continued difficulties with enforcing border controls were the primarycontributory factors. 2.11 Government total spending grew by about 34 percent in the twelve months to end- December 2006 and as a share o f GDP increased to 34 percent in2006 from 31 percent in2005. Recurrent expenditures were nearly 20 percent higher than planned, with payroll spending reaching almost 11.5 trillion cedis in 2006, nearly 15 percent above the budgetary target for the year (Table 4 o f Statistical Annex). 2.12 Consequently, the 2006 deficit rose by around 4.5 percent o f GDP, to 7.5 percent o f GDP compared to around 3 percent in previous years. The deficit was financed by issuing locally- denominated bonds which led the domestic debt to GDP ratio to widen to 13.8 percent by end- 2006, up from 10.8 percent at end-2005; this represents a reversal in the previous downward trend o f this fiscal target. In2007, spending i s estimated to continue to grow faster than revenue collection leading to an overall fiscal deficit o fbetween 7.5-8.0 percent o f GDP. Table 2.2: Overall fiscal performance Yo of GDP 2003 2004 2005 2006 2007' Actual Actual Actual Planned Prelim. Proiected TotalRevenues and Grants 27.3 30.2 29.1 30.4 26.8 27.2 Ownrevenue 22.6 23.8 23.8 23.5 21.6 22.7 Grants 4.7 6.4 5.2 6.9 5.2 4.5 Total Expenditures 28.8 33.3 30.7 34.6 34.5 35.0 Non-interest expend. 22.6 29.0 27.1 31.5 31.2 31.6 Interest expenditure 6.2 4.3 3.6 3.1 3.3 3.4 AggregateDeficit' -4.4 -3.6 -3.0 -4.2 -7.5 -7.8 Notes: 1. After outstanding payments clearance, VAT refimds and including grants 2. Projectedbasedon 43 implementation. Sources: Ghanaian authorities, IMF staff report (Table 1 o f Statistical Annex) Revenue performance 2.13 Overall, the receipt o f tax and non-tax revenues in 2006 (Figure 2.2) increased by 9 percent over the level in 2005 to 26.5 trillion cedis. However, this performance was around 5 percent less than the budgetplan. Plannedtax receipts were hit by lower than expected revenues on imported goods, notably VAT, customs and excise duties. With strong economic growth and increased levels o f imports, receipts would have been higher but for import exemptions o f 1.9 trillion cedis, or 15 percent o f indirect taxes. Exemptions are granted to assist economically- 8 important areas, e.g. imports for VALCO and VRA; in 2006, exemptions were also awarded on oil imports in order to assist energy companies respond to the power shortages.16 Difficulties with enforcing border controls also affected the collection o f import taxes; RAGBis undertaking a number o f measures to strengthen enforcement. 2.14 The dampening effect on import revenues was mitigated by stronger than anticipated growth inincome taxes. Amongst direct taxes, receipts o fpersonal income tax grew strongly (by more than 25 percent over the level achieved in 2005), reflecting in part specific measures introduced by the IRS to improve its efficiency and thereby result in increased capture o f the informal sector. As for the increase in external grants, lower than initially expected, it reflects the receipt o fMDRIresources. 2.15 In the 2007 Budget, tax revenues are projected to increase by 30 percent compared to 2006 receipts, fielled by strong increases inreceipts o f VAT, excise andtaxes on trade. External grants expected to increase by more than 40 percent over the level received in 2006. Both the former and the latter seem to have grown at a slower than expected pace. Figure2.2: RevenuePerformance,2004-200617 50 45 40 .E 35 U 30 0 Grants 0 Non-tax/NHIL = 20 -`0 25 Excise,trade 15 10 0 Petroleum 5 e4 VAT 0 Income 2004 2005 2006 2006 Prel 2007 Budget Budget Expenditureoutcomes 2.16 Much of the increase in spending in recent years has been in recurrent expenditure, notably wages. Wages and salaries currently account for almost two-thirds o f discretionary expenditure and represent just under 10 percent o f GDP. As discussed below, the increases in wage bill spending have contributed to reducing the ability o f MDAs to implement planned increases in domestic investment." In particular, the 2006 budget execution rates for domestically-financed investment by MDAs were lower than for other items. The other 16Import exemptions were reported for the first time inthe Budget Statement for 2007. ''As "Table2ofStatisticalAnnex financed by the Consolidated Fund. According to GoG, much o f the displaced domestic investment i s likely to have been non-developmental in nature and unlikely to have included counterpart funds for externally-funded projects. At the same time, as discussed below, the level o f planned increases o f investment expenditures were optimistic, given capacity constraints inimplementation. 9 spending item showing a significant increase in 2006 was the subsidies provided to the energy sector, as mentioned above. 2.17 Turning to the allocation o f resources towards poverty reduction, there were continued increases in spending on designated "pro-poor" activities. Poverty-related expenditures as a share o f GDP increased to 10.5 percent in 2006, with a slight decrease projected in 2007 to 10.4 percent, compared to 8.5 percent and 6.5 percent in 2005 and 2003, respectively. In 2006, resources from MDRIboosted the proportion o f non-wage expenditures as a percentage o f total poverty expenditureto 55 percent from 47 percent the year before. 2.18 The above described 2006 trends were reflected inthe pattern o f spendingacross sectors. Social services maintained their share (5 5 percent) o f MDA domestically-financed discretionary spending, excluding debt relief, at the expense o f economic services, where difficulties with increasing investment expenditures on infrastructure to the extent planned took their toll. In terms o f GDP, total spending edged to around 34 percent, with social sectors representing 13 percent. To address the current knowledge gap, the regional distribution o f public spending should be analyzed in the context o f public expenditure analytical work to be conducted in the immediate hture. Overview of expenditures by line item 2.19 Current expenditures grew by 40 percent between 2005 and 2006 to 25.6 trillion cedis, reflecting the significant increase inthe payroll during the year (Figure 2.3). This was nearly 20 percent over the budgeted amount. The increase in capital expenditures was 16 percent lower thanexpected, but increasedby almost 25 percent compared to 2005, to 14.5 trillion cedis. 2.20 The deterioration in the 2006 budget outturns was due to significantly higher-than- planned spending on the wage bill, as well as on subsidy payments and transfers to SOEs inthe energy sector. The granting o f substantial wage increases inthe health sector, to prevent hrther loss o f skilled staff to the private sector and abroad, led to pressure for higher wages across the public sector as a whole. Following the Government's decision in mid-2006 to suspend the raising o f utility tariffs to domestic users to cost-recovery levels, it provided subsidies to energy companies a decision prompted by the rise in international prices occurring simultaneously with the need to increase the share o f thermal power generation intotal energy supply. 2.21 The 2007 budget allocations foresee a smaller increase inpersonal emoluments than the growth rate during 2006 - with a 15 percent increase planned over the level spent in 2006. Domestically-financed investment spending, excluding debt relief, i s expected to rise by 17 percent over the level in 2006, while the externally financed i s plannedto increase by more than 50 percent. Like in 2006, an overrun in personal emoluments i s likely to occur to be offset by lower than planned domestically financed investment. The growth o f externally financed investment i s also likely to fall short o f expectations. 10 Figure2.3: TotalSpendingby LineItem" 50 IInv:External .-ul 40 Inv:Domstii,HIFC, Mxu 30 Interest -.--E20 ITransfers&Subsidies I O GOMS services a 0 I 2004 2005 2006 Budget 2006 Prelim 2007 Budget 2.22 Amongst discretionary MDA spending, payroll i s the largest expenditure item, accounting for 28 percent o f total budgetary expenditure, almost half (45 percent) o f recurrent spending, and about two thirds o f the Consolidated Fund's discretionary spending in 2006. Measured interms o f GDP, the wage bill has been increasing rapidly over the last several years, rising from 5.2 percent o f GDP in2000 to 8.7 percent in200420,before risingto an estimated 9.6 percent last year. Whilst GoG introduced measures in 2005 to strengthen payroll management and control, including the computerization o f employee records and establishment o f a ceiling on the wage bill, these improvements were reversed in2006 inthe wake o fnew salary agreements, particularly inthe health sector. 2.23 Overall, the total payroll increased by just under 40 percent between 2005 and 2006, compared to around 14 percent between 2004 and 2005. The pattern o f wage bill expenditures by MDAs is shown inTable 2.3. Inunit cost terms, the average payroll per staff member grew by 44 percent to 24 million cedis. Differences in the growth rate of unit payroll expenditures across MDAs are significant. In particular, the significant increase in payroll expenditures during 2006 is illustrated in the last column o f Table 2.3. Overall, average MDA personal emoluments increased by more than 35 percent between the first and second halves o f the year. Significant differences may be found across MDAs, these differences reflect the separate approaches adopted for wage negotiations. GoG has recognized the importance of controlling the wage bill, improving wage bill planning, and linking hture wage increases to productivity (service and efficiency) improvements. One o f its measures i s the introduction o f the Fair Wages Commission, whose work is intendedto address the issue o fwage inequities. l9Table 4 of Statistical Annex. 20In2005, the wagebilllevelheldsteadyat 8.5%. 11 Table 2.3: PatternofWage BillSpendingby MDA, 2005-2006 YOIncrease in YOIncrease in YOIncreasein Total Payroll' Unit Payroll' Unit Payroll3 2005-2006 2005-2006 H12006- H 2 2006 TOTAL 46.8% 43.6% 36.1% o f which: GES 26.4% 23.o% 12.3% Health 190.0% 180.9% 131.9% MinLocalGov 39.8% 41.6% 21.5% Food & Agric 31.2% 32.1% 23.2% RoadTransport 23.3% 28.3% 16.5% Government machinery 43.3% 40.0% 16.1% Audit 31.3% 33.9% 76.3% Works & Housing 35.5% 4 1.4% 21.6% Manpower Dev & Employment 36.3% 36.3% 23.5% Note: 1. Ministries, departments and agencies processed on the central payroll. 2. Total payroll per staff member (average for year). 3. H1=Jan-June; H 2 = July-December. Total payroll per staff member (average for 6- monthperiod). Source: MoFEP data on MDAsprocessed on the centralpayroll (excl. subvented agencies). 2.24 As noted in the 2005 ERPFM, improving budget performance over the medium term hinges heavily on how effectively the Government is able to control the wage bill. While there are other countries with wage bill shares similar to the one in Ghana, only those with higher relative domestic revenues are able to sustain a large public sector wage billwithout fiscal strain. Table 2.4: Wage BillinSelectedAfricanCountries Ghana Mauritius S. Africa Tanzania Botswana Wage and Salaries as YOof GDP 9.6 6.3 8.8 5.9 9.6 as YOof Tax Revenue 48.9 34.6 31.4 37.5 26.1 as YOof Total Expenditures 27.8 24.7 31.8 21.0 29.3 Source: IMF, most recent Article lV Consultation. Data for Ghana is estimated outtum for 2006. 2.25 The above comparisons (Table 2.4) should be made with caution. As noted above, the Ghanaian budget i s strained by the heavy demands the wage bill makes on the Consolidated Funddiscretionaryresources. The largewage bill crowds out other categories o f spending inthe domestically financed current budget, making their funding over-dependent on the assistance o f development partners. Furthermore, the underlying structure o f pay it represents i s insufficient, certainly for professional, managerial andtechnical grades, to properly motivate staff. 2.26 Aware that more systematic control andjudicious management o f the government payroll i s crucial to improving the affordability and efficiency o f public services, as discussed below, GoG has undertaken a comprehensive payroll review and is committed to addressing the issues o f equity andperformance inthe future pay structure. It has also approved a public sector reform plan aimed at rightsizing the civil service which, if firmly implemented, could help contain the wage bill. 12 2.27 Subsidies, primarily those to companies in the energy sector, increased to 2.7 trillion cedis in 2006, from a budgeted amount o f 0.8 trillion and actual expenditures of 0.4 trillion in 2005. This is about 2.3 percent o f GDP, and was the result of compensating energy companies for tariffs which were at levels less than cost-recovery, as well as the direct purchase o f crude oil by the Government to runthe country's thenno-electric power stations, involving an unbudgeted transfer of about US$90 million to the Volta River Authority (VU). Preliminary indications for 2007, point to subsidiesremaining at around 2 percent o f GDP. 2.28 Allocations o f goods and services to support the delivery o f services increased to 4.3 trillion cedis, about 11 percent o f the total budget and nearly 40 percent higher than in 2005. With spending on goods and services increasing roughly in line with higher wages, it appears that in 2006 GoG ensured that spending on these items during the year were not eroded in relation to payroll expenditures. 2.29 Whilst the increase in the wage bill reduced the ability to meet planned domestic spending on investment (excluding debt relief, domestically-financed investments in 2006 were nearly 16 percent lower than budgeted, whilst recurrent items recorded a near-20 percent increase overall compared with the budgetplan),21the real effect was somewhat mitigated by the decline in debt service obligations in 2006. Although the issue o f under spending of the investment budget i s discussed below, as a share o f total GoG discretionary expenditures (Figure 2.4) domestic investment increased between 2005 and 2006. The relative shares o f the items in the 2007 Budget are approximately in line with the shares for 2006, with personal emoluments planned to account for two-thirds o f total discretionary spending, just about the 65 percent share in2006. Spending on investment, at 13percent, isplannedto bemarginallyhigher thanthe 12.5 percent share spent in2006. Figure2.4: DiscretionaryExpenditureby item(GoGonly)*' 100% I 80% E hvestment 60% Services 40% 0 Admnistration 20% Personalemoluments 0% Actual 2004 Actual 2005 Budget 2006 Prelim2006 Budget 2007 ~ Overview of sectoral expenditures 2.30 In 2006, domestic MDA expenditures (financed by the Consolidated Fund, HIPC and MDRI)rose by 55 percent compared to 2005, areal increase ofmore than40 percent. The GoG continues to prioritize spending insocial services. Whilst overall MDA expenditures were hit by lower than expected tax revenues in2006 (7 percent lower thanplanned), social service spending 2'Lower-than-expectedexternal expenditureswouldhavereducedthe amountof counterpart hndsrequired. 22ExcludesHIPC, MDRI(seeTable 5 of StatisticalAnnex). 13 was protected from cuts, as shown by the increase o f more than 25 percent over budgetedlevels, and the substantial increase inthe payroll, particularly in health, was an important contributing factor (Figure 2.5). By contrast, cuts were made compared to budgetedamounts inthe economic and infrastructure sectors, particularly in road transport and works and housing, those areas which involve significant investment and lengthy procurement procedures and for which expenditure releases are much lower than for other types o f expenditure (see Section 3 below). 2.31 Compared to the spending pattern in 2006, the 2007 Budget has allocated a higher proportion o f discretionary spending on economic services, including infrastructure (an appropriated share o f 18 percent in 2007 compared to 15 percent in 2006) and on public safety (14 percent in the current budget year compared to lopercent last year), whilst the share for social services has remained steady (47 percent in2007 compared to 48 percent in2006). Figure2.5: DiscretionaryExpendituresby Sector 23 a 2005Actual 2006 Budget 2006 Prelim General public Econorric Social services Public safety Other adrrin services 2.32 Turning to MDA spending from all funding sources, the strong influence o f external funds contributes to a higher share of the economic sectors (including infrastructure) in the overall total (Figure2.6). During 2006, these expenditures increased by about 40 percent over the level in2005. Lower than expected disbursements o f externalresources for infrastructure, as well as constraints on implementationcapacity, affected the sector's ability to meet its ambitious plan for 2006. Figure2.6: DiscretionaryExpendituresby Sector (All Sources of Funds)24 Generalpublic Economic Social services Public safety Other adrrin services 23Includes Consolidated Fund, HIPC and MDRI financed expenditures (see Table 7 o f Statistical Annex). 24Details of expenditures from all sources o f hnd are shown inTable 7 o f the Statistical Annex. 14 2.33 The described expenditure trends are reflected in real changes in spending patterns. As proxied by the share o f these expenditures in GDP, the social sectors have benefited from real increases inspending, although most o f the increase in2006 reflects the hike inwage rates inthe sector (Table 2.5). GoG recognizes that, in order to improve productivity in the sector and achieve the MDGs, increased spending on wages and salaries must be matched by adequate expenditures for improved service delivery and greater coverage o f services. As indicated above, overspending on wages has reduced the amount available for investment financed by the Consolidated Fund, particularly ininfrastructure, although the reduction inspending also reflects optimism in how quickly the overall level o f investment could be raised (reflected in setting the 2006 budget plan), as well as lower than expected external finance on investment (including in infrastructure) andhence lower than expected counterpart financing requirements. 2.34 Comparing the 2006 outturn and 2007 budget shares across all sources o f funds, a similar expenditure pattern emerges as for discretionary spending, with higher shares for economic services and public safety, and a steady share for social services. This pattern also holds true for spending as a share o f GDP. Table 2.5: Discretionaryexpenditureby sector (All Sources of Funds) 2004 2005 2006 2006 2007 Actual Actual Budget Prelim Budget % GDP Total 25.2% 24.9% 31.1% 28.3% 29.1% o f which: General public administration2 3.6% 3.6% 4.3% 3.5% 3.1% Economic services3 6.6% 7.4% 9.6% 6.7% 9.2% Social services 11.6% 11.2% 12.5% 13.O% 12.8% Public safety 1.8% 1.7% 2.4% 1.9% 2.4% Source: Table 7 o f Statistical Annex 2.35 GoG passed a Supplementary Budget in July 2006. The funds were intended to be used primarily for "growth-enhancing" investment expenditures, as well as projects promoting good- governance. As such, the majority o f planned expenditures inthe Supplementary Budget (Table 2.6) were found in infrastructure (34 percent o f total supplementary spending), reflecting its emphasis on investment, and in public administration (33 percent); however, the budget execution rate o f infrastructure spending25 was the lowest amongst all sectors. The Supplementary Budget was funded primarily by external and related sources, including the MillenniumChallenge Account, MDRI savings, and planned divestiture revenues. Inthe end, the privatization program stalled and revenues from divestitures during 2006 were a fraction o f those planned. 25For all spending, not just funds from the supplementary budget. As the supplementary budget was funded out o f the Consolidated Fund, resources destined for supplementary spending were not distinguished from those planned in the original budget. 15 Table 2.6: 2006 Supplementary Budgetby sector Share of 2006 SectoralOutturnsas Supplementary YOof Sector Budget 'Appropriation(%)' General public administration 32.6% 90.8% Economic services 12.2% 72.9% Infrastructure 33.6% 51.2% Social services 8.9% 124.8% Public safety 12.8% 96.1% Other 0.0% 67.3% Total 100.0% 97.0% Note: 1. Data are for MDA expenditures financed from the Consolidated Fund, MDRIand HIPC. Appropriation is total appropriation, including Original and Supplementary Budgets Source: MoFEP 2.36 Looking inmore detail at investment expenditures, the difficulties in increasing domestic investmentby MDAs is evident, with investment at nearly half the budgeted level during 2006 (Table 2.7). As indicated above, this i s a reflection both o f the ambitious increased target for investment inthe 2006 budget, but also o f the implementation procedures which hamper such an increase taking place in one year. This experience i s a useful lesson as the GoG aims to boost investmentspending evenmore inthe coming years. Table 2.7: SectoralExpenditureson Investment, 2004-2006 2004 2005 2006 2006 2006 Investmentby Sector - GoG Actual Actual Budget Actual Actualover budget discretionary' (YOgrowth) % of GDP General public admin 0.2% 0.7% 1.6% 1.1% -31.8% Economic services (incl. infrastructure) 1.3% 1.3% 2.8% 1.1% -52.9% Social services 1.O% 0.6% 0.8% 1.O% 28.8% Public safety 0.2% 0.1% 0.6% 0. 1% -69.7% Other (multisectoral) 0.4% 0.1% 0.6% 0.3% -87.7% Total 3.1% 2.9% 6.4% 3.6% -41.6% % of Total General public admin 6.8% 24.4% 25.5% 29.9% Economic services 41.0% 45.4% 43.7% 30.7% Social services 32.7% 22.6% 12.9% 27.6% Public safety 6.3% 4.7% 8.9% 2.9% Other (multisectoral) 13.3% 2.9% 9.0% 8.9% Total 100.0% 100.0% 100.0% 100.0% Note: 1. Includes HIPC, which is assumed to be allocated 100%to investment Source: 2004-2006 CAGD reports 2.37 Recognizing the continuing energy challenges, inJuly 2007, the Government presented a Supplementary Budget to the National Assembly seeking additional spending authorization o f about US$885 million (a 15 percent increase in spending). The bulk o f this spending (US$752 million) i s for the power sector, comprising emergency expenditures and new investments in generating capacity, as well as the creation o f a reserve fund for the purchase o f crude oil and natural gas. The remaining amount is mostly for roads and airport upgrading, necessitated by 16 Ghana's hosting o f the Africa Cup o f Nations (CAN) 2008 games. Financing for this extra expenditure will come chiefly from divestiture receipts (US$500 million) from the sale of Ghana Telecom and WESTEL, and from new international capital markets borrowing (US$375 million). Depending on the extent to which the supplementary authorizations could be spent before the end o f December 2007, the carry-fonvard o f this emergency spending for power has implications for the 2008 budget. Contingency 2.38 Reflecting a downward trend, contingency spending in the 2007 budget statement at 2.7 percent o f total COGMDA expenditures i s a welcome development. This trend was also evident in the 2006 outturn when the share of contingency in total discretionary expenditures was just over 5 percent, a shade lower than planned (Table2.8). The GoG's plans to complete negotiations with public sector unions over annual pay settlements earlier (ideally, before the beginning o f the fiscal year) would assist in more accurate budget planning as well as reduce the amount o f contingency required, ensuring that these amounts are reserved for genuine emergencies andunforeseen situations.26 2.39 However, there i s an inconsistency inthe treatment and reporting o f contingency between the budget plan and the executed budget. Inthe Budget Statement, GoG contingency amounts are allocated to each o f the four items (personal emoluments, administration, services, and investment) as part o f discretionary MDA spending but they are not allocated to an MDA. One o f the factors reportedly contributing to the significant share o f contingency allocated to personal emoluments in the budget statement i s that negotiations on salary increases are conducted after the budget has been approved, and hence the exact amount needed for salary increases by MDA are not known at the time o fbudgetpreparation. Table 2.8: Reportingof Contingencyby MDA andLineItem' 2006 2006 2007 Budget Actual Budget Bn cedis Personalemoluments 749 25 170 Administration 47 412 86 Services 96 413 103 Investment 93 80 181 Total 986 930 540 Of which: Ministry of Women Affairs -PersonalEmoluments 25 Ministry of Women Affairs - Administration 412 Ministry of Environment- Services 413 Ministry o f ForeignAffairs -Investment 80 % oftotal GoGDiscretionaryExpenditures 5.3% 5.2% 2.7% Source:2006 CAGD Reportand FinancialStatements 26 The OECD manual on PFM good practice suggests a contingency of 1-3% to avoid political bargaining over allocations. 17 2.40 The reported difference in approach to contingency i s illustrated by comparing the planned and actual amounts by line item inTable 2.8. At the budget planningstage, the majority o f contingency is expected to be used for paying salary increases (these are budgeted and shown as such under total personal emoluments in the Budget Statement but are not distributed across MDAs). In the budget execution reports, by contrast, the reporting line shown for the use o f contingency on personal emoluments is relatively small (cedis 25 billion out o f 749 billion). However, salary increases was a key reason leading to the higher than planned outtum o f personal emoluments which reached cedis 11.4 trillion compared with a voted amount o f cedis 9.9 trillion. Consequently, it i s not possible to compare planned and actual contingency spending on a consistent and comprehensive basis, and this contributes to significant deviations between budgeted and actual expenditures and reduced budget credibility (see para 3.5 in Chapter 3 below). Recent trends in external resource mobilization 2.41 The development partners have continued to support the Government's GPRS I1policy objectives and its goal o f meetingthe MDGs. According to estimates preparedfor the June 2007 Consultative Group held in Accra, external assistance during 2006 totaled almost US$1.2 billion.27 Of these resources, budgetary support represented close to 30 percent and the remainder was provided in the form of project support for sectors, with an emphasis on poverty reducing areas and areas which support GPRS priorities, including an increasing emphasis on infrastructure and other private sector development (Table 2.9). The outlook for 2007 continues to be one of strong support to the country's development efforts. Table 2.9: Overview of External FinancingFlows by Type and GPRS area 2004 2005 2006 2007 Actual Actual Prelim Prelim US$mn M D B S Budget Support 303 277 324 319 IMF Support 39 38 117 Sector/Investment support 28 608 689 736 997 By GPRSarea: Private Sector Competitiveness 289 312 362 569 Human Developmentklasic Services 278 342 315 343 Good Governance and Civic Responsibility 41 35 59 85 TOTAL 950 1,004 1,176 1,316 Of which: Credits (%) 34% 37% 37% 31% Of which: Grants (%) 66% 63% 63% 69% Source: The Ghana PartnershipResource Overview, Accra, June 2007 *'HIPC and MDRI debt relief assistance totaling US$174,197 and 307 million for 2004, 2005 and 2006, respectively, i s not included inthe estimate. 28For 2006, ADMD reports actual disbursements o f about US$488 million. The major source o f discrepancy are grants, for which disbursements reported by ADMD represent 43 percent o f those identified in the "Ghana Partnership Resource Overview". 18 Poverty-related e~penditures~~ 2.42 Despite wage pressures and the increase in energy subsidies, Government spending maintained its pro-poor orientation. Poverty related expenditures totalled 12.3 trillion Cedis in 2006, an increase o f nearly 50 percent over the level in 2005, and accounted for 10.5 percent o f GDP, compared to 8.5 percent o f GDP inthe previous year (Table 2.10). This focus on pro-poor spending i s set to continue in2007 when it i s expected to account for 10.4 percent o f GDP. Table 2.10: PovertyRelatedExpendituresby Area (in % of GDP) 2003 2004 2005 2006 2007 Actual Actual Actual Actual Proj. Total poverty related expenditure 1/ 6.5 7.7 8.5 10.5 10.4 o f which: Basic Education 3.6 3.7 3.8 4.0 4.3 Primary Health Care 1.o 1.4 1.7 1.7 2.0 Agriculture 0.2 0.2 0.2 0.4 0.4 Rural Water 0.1 0.1 0.2 0.2 0.1 FeederRoads 0.5 0.4 0.4 0.6 0.4 Rural Electricity 0.1 0.2 0.4 0.9 1.6 Other Poverty RelatedExpenditure 1.1 1.6 1.7 2.7 1.6 Source: Table 8 o f Statistical Annex 2.43 The GoG's continuing emphasis on poverty reduction, including the pro-poor orientation o f public spending, has contributed to a reduction in the poverty headcount, which according to recently completed 5'h Ghana Living Standards Survey has fallen by 11 percentage points since 1998/99, reaching 29 percent in 2005/06. Current projections suggest that Ghana should reach the MDGo fhalving the 1990poverty rate before 2015. 2.44 Poverty-reducing expenditures were protected from expenditure cuts during 2006, with spendinghigher than budgeted in most areas, with the exception o f feeder roads (due to longer preparation procedures for investment procurement) and primary health care. Basic education, health and rural electrification represented more than 60 percent o f total poverty-related spending. Also important is the increase in non-wage expenditure as a percentage o f total poverty expenditure to 55 percent in 2006 from 47 percent the year before. The latter was mostly due to the large amount o f MDRI resources approved with the 2006 supplementary 29Poverty related expenditures include the following domestically-financed expenditures from the Appropriation Act: (i) Education sector - non-formal education, pre-school, basic education, technical & vocational education, teacher training, and educationmanagement and supervision, plus a fraction o fthe expenditures on special education (go%), general administration (50%); (ii) sector -district health services, regional public healthexpenditures, Health oncology expenditures, funding for the international red cross, and health learning materials, plus a fraction of the expenditures on regional health support services (SO%), psychiatric hospital (SO%),regional clinical care (SO%), health training institutions (70%), institutional care (60%); (iii) Agriculture sector - crop services provided through the regional agriculture development units and projects funded by IDA; (iv) Works and Housing sector - the community water and sanitation, rural housing and rural hydrological drainage; (v) Roads and Transport sector - feeder roads and road safety; (vi) Energy sector - rural electrification programs; and (vii) Other sectors - national vocational training, social welfare programs and others. 19 budget. Inbasic social services, except inhealth, non-payroll related expenditures represented a greater share o f spending. Table 2.11: Cross-CountryComparisonof Poverty-ReducingExpenditures (as % of GDP)" 2002 2003 2004 2005 2006 Actual Actual Actual Actual Prel. 29 Post-HIPC DecisionPoint countries 7.3 7.9 7.8 8.4 8.8 (weighted average) Ghana '' 4.8 6.5 7.7 8.5 10.5 Burkina Faso 4.7 4.7 5.4 5.5 5.5 Cameroon 3.4 1.9 5.2 5.8 6.3 Ethiopia 11.9 12.5 12.4 14.2 15.8 Madagascar 4.2 3.7 3.1 10.5 11.0 Tanzania 8.1 9.1 9.0 10.5 13.4 Uganda 9.5 11.6 13.4 11.9 11.1 Senegal 5.9 6.6 7.3 7.9 7.9 Nicaragua 10.2 11.4 12.3 13.1 12.3 1iData from HIPC and MDFU Status of Implementation Report, August 2007, by World Bank and IMF staffs. 2Data for 2006 i s actual. 2.45 Poverty-reducing expenditures are defined differently across countries and therefore comparisons should be made with caution. However, data in Table 2.11 suggests that by increasing pro-poor spending from 4.8 to 10.5 percent o f GDP, Ghana is broadly in line with average spending o f Post-HIPC Decision Point countries. However, further efforts are recommended to strengthen the pro-poor focus o f public spending in Ghana with a view to narrow the gap comparing with countries such as Ethiopia, Tanzania, Uganda andNicaragua. To sharpen the pro-poor orientation o f public expenditures, it i s recommended that a study be conducted to deepen the knowledge about funding gaps faced by regions with higher incidence o f poverty (e.g. northern region). This study should also analyze the adequacy o f the sectoral composition of poverty-related expenditures. Expenditureby key sectors Education 2.46 In total, sector expenditures increased from 5.8 trillion cedis in 2004 to 9.5 trillion in 2006. The evolution o f expenditures for the education sector as a whole is shown in Table 2.12 below. The GoG funds, including HIPC, account for the majority o f resources to the sector, followed by the Ghana Education Trust Fund(GETF) (12 percent in 2006) and IGFs (11percent in that year). The growing influence o f both GETF and Internally Generated Funds (IGFs) sources o f sector financing i s notable, with increases o f 61 percent and 48 percent, respectively, between 2005 and 2006, compared to 33 percent for GoG funds. 2.47 Sectoral spending grew by 30 percent between 2005 and 2006, with relatively faster growth taking place in recurrent expenditures. Amongst education programs, as would be expected for a government which prioritizes poverty-reducing expenditures, the largest share o f spending i s on primary education, followed by the two types o f second-level (secondary 20 education). Tertiary education, with significant financing provided by the GETF, accounts for nearlyone-quarter o f all expenditure. Over time, primary programshave taken a slightly smaller share o f total sectoral expenditures, falling from 32 percent in 2004 to 28 percent last year. Whilst the emphasis on growth-enhancing expenditure in GRPSII would tend to favor expenditure on secondary, vocational and tertiary education, the Government recognizes the need to control recurrent public expenditure on tertiary education, by adopting realistic policies on cost-sharing, in favor o f lower-cost polytechnics, and increase the expenditure per student at primary level. The 2007 Education Sector Annual Review (ESAR) acknowledges that although enrolment i s increasing at all levels o f education, enrolment at the primary level will need to be accelerated if Ghana is to meet the goal o f universal primary completion by 2015. 30 The ESAR also identified a number o f measures to improve the efficiency o f education spending. In this regard, measures focus on teacher management, deployment and utilization, capacity buildingo f management at the various cost centers and effective monitoring o f outputs and outcomes. Finally, it will also be important to ensure that wage and non-wage resources are allocated in a balanced way, ensuringthat there are adequate levels of spending on educational supplies and on investmentindeveloping andmaintaining school, other educational facilities and equipment, and that resources are released inaccordance with these plans. Table 2.12: EducationSector Expendituresby ProgramandSource of Funds 2004 2005 2006 YOof total YOoftotal YOof total Program Pre-school 4.0% 3.4% 3.9% Primary 31.6% 29.9% 27.6% JSS 16.0% 17.8% 16.8% sss 19.9% 20.8% 15.8% TVET 1.1% 1.2% 0.9% SPED 0.4% 0.4% 0.4% NPED 1.6% 1.9% 0.7% Teacher Education 3.7% 3.9% 3.5% Tertiary 21.0% 19.6% 22.5% Management, SubventedAgencies 0.5% 1.O% 7.7% HIV-AIDS 0.2% 0.1% 0.3% TOTAL 100.0% 100.0% 100.0% Financed by: GoG 67.6% 66.0% 68.0% Development partners 7.3% 8.4% 2.4% IGFs 9.1% 9.4% 10.7% GETF 9.5% 9.7% 12.1% HIPC 4.7% 4.3% 4.7% DACF 1.8% 1.2% 1.5% EFA Catalytic 0.0% 0.5% 0.3% SIF 0.0% 0.6% 0.4% Sources: MoESS, developmentpartners(Table 12 o f Statistical Annex) 30"Education Sector Performance Report 2007") Ministry o f Education, Science and Sports, Republic o f Ghana, July 2007. 21 Health 2.48 Overall, health expenditures increased by 33 percent last year over 2005, to reach 4.8 trillion cedis in 2006, representing around 14 percent o f overall government expenditures. The structure o f health expenditures over the last three years is shown in Table 2.13 below. GoG discretionary resources, partly reflecting decision by some donors to move towards budget support, IGFs and NHIS funds have grown in importance as sources o f funds, and together accounted for nearly 70 percent o f sector financing in 2006. As indicated above, the sharp increase inthe share o f GoG funds i s accounted for by the growth inthe wage bill for the sector, both interms o f share o f overall spendingand in absolute terms. The wage deal agreed in2006 will continue to increase wage rates through 2007, thus squeezing other non-personal emoluments (PE) GoG expenditures, particularly investment. 2.49 As for sources o f finance, personnel emoluments are mainly fundedby GoG, with a small top-up by IGFs; administration spending comes mainly from IGFs, with some also from GoG and the HealthFund. Service expenditures are funded by most sources, whilst investment relies mostly on financial credits, NHIF, Health Fund and HIPC, with some from the GoG and IGFs. Any reductions in resources from these sources have a negative impact on investment and supplies and materials to support service delivery. This was particularly true in2006, with only a proportion o f collected revenues destined for NHIF actually being transferred to the Fund (1,228 billion cedis collected through the NHIL a ainst transfers to the Fund o f 764 billion, a transfer rate of 62 percent o f the amount collected). w Table 2.13: HealthSector Expendituresby Programand Source of Funds 2004 2005 2006 YOof total YOof total YOof total Programme/institution level Sub-district level services 7.0% 7.0% 6.0% District-level services 30.0% 26.0% 29.0% Regional-level services' 19.0% 19.0% 17.0% Tertiary-level services 16.0% 17.0% 17.0% Management, other 25.0% 27.0% 25.0% Subvented organisations 3.O% 4.0% 6.0% TOTAL 100% 100% 100% Financed by: GoG ' 40.0% 43.O% 53.0% IGF 12.0% 12.0% 13.0% HIPC 6.0% 0.0% 2.0% NHIS 0.0% 0.0% 5.0% Donor Health Fund 24.0% 15.0% 8.0% Programme/project funding 7.0% 14.0% 9.0% Financial credit 11.O% 15.0% 9.0% Other2 0.0% 1.O% 1.O% Notes: 1, Includes teaching institutions. 2. Unspecified. Sources: MoH, development partners (Table 13 o f Statistical Annex). 3'The transfers from Treasury to the Fund were predicated on the delivery o f expenditure plans by NHIF; these plans were delayed and hence led to the delays inthe transfer o f finds. However, as NHIF is a Statutory Fund, and not an MDA, 100% o fNHILreceipts shouldbe transferred to the NHIF. 22 2.50 Interms ofprograms, the major destination for health spending in2006 was for district- level services (29 percent), with spending on headquarter- and other management- functions accounting for one-quarter o f spending. During the last three years, the share o f total health spending on sub-district level services has slightly decreased, whilst that on tertiary care has marginally increased. Otherwise, there has beenlittle change inthe institutional shares. 2.51 Inorder to support its efforts to streamline public spending and improve outcomes inthe education and health sectors, the GoG has completed in July 2007 the field work to collect data for a Public Expenditure Tracking Survey (PETS) exercise, and the analytical report i s planned to be completed during the first half o f 2008. All 10 regions and about one third o f all districts were coveredby the PETS survey. The facilities surveyed represent 7 and 26 percent o f the total number o f facilities, at different levels, o f the education and health sectors, respectively. The survey targeted key components o fnon-wage expenditures. Agriculture 2.52 The current composition o f public expenditure on the agriculture sector suggests that the priority to diversifying into crops other than cocoa for income generation and export earnings, stated in the Government's Food and Agriculture Sector Development Policy (FASDEP II), i s not being adequately funded. The combined expenditures o f the Ministry o f Food and Agriculture (MoFA) and the Ghana Cocoa Board (Cocobod) represent about 9.7 percent o f the total budget in2007. However, the share o f cocoa related expenditure intotal public spendingi s around 85 percent. Foreign assistance accounts for over halfthe inflows to the non cocoa sector, and many o f these lie outside the control of MoFA. Currently, there is little internal revenue generation although the potential exists for at least partial cost recovery with some services (e.g. certain veterinary and planprotection services). 2.53 Weak budget discipline further complicates funding o f non-cocoa expenditures. Except for 2006, when actual spending was slightlyhigher thanbudgeted, actual spending fundedby the Consolidated Fund has been lower that budgeted allocations (Table 2.14). Moreover, within MoFA, actual expenditures primarily fund staff costs and wage pressures typically result in overspending insalary itemswhile investments fall short o f expected disbursements. Table 2.14: MoFA Expenditure Actualversus Budgeted,2004 -2006 - 2004 2005 2006 MoFA total 92% 85% 103% o f which: Personal emoluments 111% 133% 134% Investment 56% 28% 63% Source: Statistical Annex, Table 6. 2.54 To facilitate implementation o f the FASDEP I1 policy objectives, further analysis is required to inform the policy dialogue and identification o f reforms aimed at improving the allocation o f public resources to the agriculture sector and its transparency, and to strengthen budget execution. A Public Expenditure Review i s underway which will inform the policy dialogue backed by donor-financed sector budget support. 23 Natural Resources and Environment 2.55 Key government entities responsible for the enforcement o f environmental legislation are under-funded and fragmentation o f the budget i s a serious issue inall agencies posing challenges in terms o f transparency of the resource envelope and transaction costs within which agencies have to operate. These findings emerged from a public expenditure review o f three environmental agencies (Forestry Commission, Minerals Commission and Environmental Protection Agency) and their related line ministries conducted in the context o f the recently published Ghana Country Environmental Analysis (CEA).32 2.56 Following offshore discoveries in mid-2007, commercial oil production may commence early in the next decade. Ghana has been actively participating in the Extractive Industries Transparency Initiative (EITI). The review strongly supports the authorities' efforts to design a transparent petroleum revenue management system that also suits Ghana's development needs. Inthis regard, lateinFebruary2008, aworkshop onoil sector developments inAccra, whichwill involve the Bank, the IMF and other donors, will also include a seminar on fiscal management o f petroleum revenues. The Government may also include the treatment o f petroleum revenues in the forthcoming Fiscal Responsibility Legislation. Table2.15: NaturalResourcesandEnvironment Agency Budgets,2005-2007 - Forestry Minerals Env. Prot. Year Total Budget Commission Commission Agency Total (%) (Yo) (%) (%) GoGTreasury 14 0 4 18 IGF 45 6 4 55 2005 Donors (recurrent grants) 27 0 0 27 Total 86 6 8 100 GoG Treasury 10 0 3 13 IGF 65 8 4 77 2o06 Donors (recurrent grants) 10 0 0 10 Total 85 8 7 100 GoGTreasury 9 1 2 11 IGF 41 8 3 51 2007 Donors (recurrent grants) 15 0 0 15 HIPC fund 0 22 0 22 Total 65 31 4 100 Source: Table 2 of the program document of the Natural Resource and Environmental Governance budget support operation, under preparation. 2.57 Expenditures of the natural resources and environmental-related agencies are estimated to have increased from about US$19 million in2005, to US$26 million and US$43 million in2006 and 2007, respectively. The sources o f funding o f those expenditures are summarized in Table 2.15 above. While the Forestry Commission (FC) and Minerals Commission (MC) accounted for about half o f the budget o f the Ministry o f Lands, Forestry and Mines, the Environmental Protection Agency (EPA) accounted for 1.5 percent o f the budget o f the Ministry o f Local Government, Rural Development and Environment. Combined expenditures o f the FC, M C and EPA are estimated to haverepresented about 1.2 percent o f spending fundedbythe Consolidated Fund. 32World Bank Report No. 36985, November 2,2007. 24 2.58 The CEA indicates that while the country has a relatively strong environment framework, weak enforcement capacity has resultedinthe rapid depletion o f natural resources that threatens sustained growth and poverty reduction in the near future. Building on the CEA findings and recommendations, the Government has decided to implement a comprehensive set o f reforms under the five-year Natural Resource and Environmental Governance (NREG) program. To address the weaknesses of the operations of the FC, M C and EPA, the implementation o f the NREG will be assisted by donor-funded sector budget support operations aimed at ensuring predictable and sustained financing o f the forestry sector as well as forest law enforcement, improving mining sector revenue collection, management and transparency, and addressing social and other environmental considerations across sectors. BUDGETALIGNMENT WITH GPRSII 2.59 In terms of aligning the budget with the GPRS, with the three-year time period for GPRSII starting in 2006, the 2006 budget is the first possible reflection o f its priorities (Table 2.16). Amongst 2006 appropriated allocations, private sector competitiveness (including infrastructure development) was accorded a higher share than anticipated in GPRSII (41 percent compared to 36 percent). Planned amounts inthe budget for good governance were also higher than anticipated in the GPRS document. These higher-than-expected appropriations were at the expense o f human resource development, whose projected share was 36 percent compared to 54 percent inthe GPRS. Table 2.16: 2006 Budgetand GPRSII GPRSII Budgeted Actual Diff Actual over DiffActualover Allocation Allocation' Allocation GPRSII: Budget: as % of Shareof total Shareof total Share of total as YOof GPRSII Budget GPRSII Thematic Areas YO YO YO YO YO Private Sector Competitiveness 36.4% 40.5% 36.9% -23.5% -35.3% of which: GoG 13.7% 3.7% External 20.2% 22.9% Statutory Funds 6.6% 10.4% Human ResourceDevelopment 53.7% 35.8% 43.0% -39.7% -14.8% of which: GoG 5.8% 5.4% External 11.8% 21.1% Statutory Funds 18.3% 16.4% GoodGovernancdCivic Responsibility 9.9% 21.4% 20.1Yo 53.8% -33.3% of which: GoG 9.8% 7.1% External 1.5% 3.I% Statutory Funds 10.1% 9.4% Other* 0.0% 2.3% 0.0% NIA -99.6% of which: GoG 0.0% 0.0% External 0.0% 0.0% Statutory Funds 2.3% 0.0% TOTAL 100.0% 100.0% 100.0% -24.6% -29.0% of which: GoG 29.3% 16.2% External 33.4% 47.7% Statutory Funds 37.3% 36.2% Note: 1. As appropriated in the Appropriation Act. 2. Unallocated MDRIand HIPC. Source:NDPC (Table 14 of Statistical Annex). 25 2.60 With regardto 2006 actual expenditure outturns, these trends were slightly lessened, with private sector competitiveness reducing its share to 37 percent (compared to just over 40 percent as budgeted), whilst human resource development took a larger share than planned in the budget (43 percent compared to the budgeted 36 percent). Some o f these changes reflect variations in external resources (e.g. slightly higher than expected resources available for spending on human resource development but fewer funds for private sector competitiveness), whilst others reflect greater resources targeted by GoG and the Statutory Funds duringthe year. 2.41 The analysis o f outturns by funding source and GPRSII area in 2006 (Figure 2.7), shows that whilst COGresources were reasonably evenly split between human resource development and private sector competitiveness, external resources were overwhelmingly directed to private sector competitiveness. The latter includes spending on infrastructure development. Good governance and civic responsibility was the only thematic area with actual spending above that planned inthe GPRS, mainly due to funding channeled to activities in the areas o f public policy management and public sector reforms, fiscal policy management and enhancing decentralization. Figure2.7: 2006 Spendingand GPRSII Good GownancelCivic ResponsibiIity ea Human Resource Deelopment Pvt Sector Cornpetitiw-tess GoG External Statutory Funds 2.62 Turning to budgeted amounts for 2007, a similar pattern emerges for the current budget year as that which took place in 2006 (Table 2.17 above). Private sector competitiveness continues to enjoy a higher share than expected in GPRSII (44 percent compared to 37 percent), as do budgeted allocations to good governance (16 percent against 10 percent) with the budgeted share for human resource development being lower than expected. 26 Table2.17: 2007Budget andGPRSII GPRSII Budgeted Difference of Allocation Allocation' Planned over Share of total Share GPRSII G P R S I I Thematic Areas % % as % of GPRSII Private Sector Competitiveness 36.7% 44.4% 25.3% Of which: GoG 18.7% External 24.9% IGF 0.8% Human Resource Development 53.6% 39.3% -23.1Yo Ofwhich: GoG 20.9% External 15.7% IGF 2.8% Good Governance/Civic Responsibility 9.7% 16.3% 46.0% Of which: GoG 12.4% Externa1 3.3% IGF 0.6% TOTAL 100.0% 100.0% 9.6% Ofwhich: GoG 52.0% External 43.8% IGF 4.2% Note: As appropriatedinthe AppropriationAct. Source:NDPC(Table 15 of StatisticalAnnex). 2.63 Regarding the share by funding source (Figure 2.8), development partners are expected to increase their share of resources directed to human resource development GPRSII areas (representing a 36 percent share of their total resources), balancing out the emphasis on infrastructure development and other private sector development activities (with a planned 57 percent share). Figure2.8: 2007 PlannedSpendingand GPRSII EGood GoEmance/CiLic Responsibility Human Resource Deelopment Pvt Sector L0 GoG External IGF 27 2.64 In terms of monitoring GPRSII, with its greater emphasis on growth-enhancing expenditure, GoG recognizes the need to identifL the types o f expenditures these represent, and attach an identifying code to these expenditures, as was done for poverty-reducing expenditures. This process is at an early stage o f development, and the consultationprocess is continuing. The current emphasis i s on clarifying how to define growth-enhancing expenditures and identifying what coding changes are required. A key objective i s to enable the accounting system to be used to track such expenditures; currently, with data on the appropriated budget and the outturns from CAGD, the Activate system can analyze both actual and budgeted expenditures by GPRSII thematic area. The 2008 Budget Guidelines emphasized that GPRSII priorities were to be used for the preparation o f the 2008 Budget. CONCLUSIONAND NEXT STEPS 2.65 Having concentrated on achieving macroeconomic stability over the past several years, the Government's policy focus over the medium term i s to move the economy onto a higher growth path to enable it to meet the Millennium Development Goals (MDGs) and achieve its aim o f Ghana becoming a middle-income country by 2015. This policy was reflected inthe 2007 and 2008 budgets, with their emphasis on higher domestic investments and increases inpublic sector wages and salaries funded by an increase in revenues from VAT on imports, MDRI grants and divestiture receipts. In order to meet these objectives, GoG will need to ensure that macro stability i s hrther consolidated and the efficiency o f public spending i s improved to generate savings for scaling up for investment as well as to provide greater value for money in the delivery o f public services. Inthis context, it i s important to ensure sound fiscal management to contain the deficit, including duringthe 2008 electoral cycle. 2.66 In this regard, the analysis of recent spending patterns suggests three main fiscal risks over the short to medium term. The first fiscal risk i s that tax receipts will fall short o f the ambitious revenue targets set by the Government which are predicated on significant growth projections for GDP and substantial efficiency gains for the revenue agencies from greater integration between computer systems. Interms o f the outlook for revenue growth based on the likely revenue drivers, GDP growth prospects are likely to continue to be strong, given highgold prices and new investment in the mining sector, although continued problems with power shortages and any potential delays innew investments coming on stream inthe power sector may affect the growth rate. Experience from other countries would indicate that significant gains from greater efficiencies in tax administration (particularly from technological improvements) are likely to take longer to materialize than currently envisaged. A fiscal strategy based upon rapid domestic revenue growth has obvious vulnerabilities as revenue underperformance will require a downward adjustment inexpenditures duringthe year. 2.67 The second fiscal risk i s the extent to which GoG will be able to contain payroll expenditures, particularly given the upcoming elections later in 2008, Continued upward pressure on wage expenditures will potentially crowd out other non-wage recurrent expenditures, particularly, maintenance and materials to support service delivery, as well as resources to support domestic investment. The replacement o f the Government Universal Salary Structure (GUSS) with a "single spine" for public-sector salaries is to be implemented over the medium term, following investigation by the Fair Wages Commission, established to review levels o f pay across the public sector in order to address equity and wage negotiation issues. The establishment 28 o f a single pay spine for the public service has the potential to constrain inter-MDA pay leapfrogging, but its credibility will depend on how similar jobs in different services are treated in the pay spine, andhow the balance i s struck between external labor marketpressures, internalequity considerations and overall wage bill sustainability. Whatever the outcome o f the Commission, it will be important to ensure that the wage bill as a share of GDP shows no further increases. More generally, the government recognizes that the reform o f pay structures and processes needs to be linked to reform o f the public sector as a whole, so that new arrangements for remuneration o f public servants are linked to improvements inproductivity. The total costs o f public service reform, including separation payments and pensions, will also need to be closely watched. 2.68 The third fiscal risk i s that the energy crisis takes longer than planned to resolve and continues to necessitate the payment o f higher than expected levels o f energy subsidies. Continuing upward pressure o f energy subsidies to consumers will crowd out other non-wage expenditures, such as domestic investment. Higher utility subsidies will be required if there are delays inraising electricity tariffs to cost recovery levels. Inaddition, the indirect fiscal impact, through slower growth o f revenues, will be higher if planned investments in generation, transmission and distribution fail to materialize in a timely manner. There may also be the need to address financial shortfalls inthe utility companies resulting from technical and/or commercial losses 29 3. PUBLICFINANCIAL MANAGEMENT REVIEWOF PROGRESSOF GOVERNMENT'S SHORT AND MEDIUM TERMACTION PLAN 3.1 The GoG i s committed to increasing significantly its planned spending on investment, particularly to modernize and expand its infrastructure, in order to boost its growth rate and thereby meet its goals o f achieving the MDGs and eventually reaching middle-income country status. It recognizes that ensuring sufficient resources are available for this investment will require improvements in the efficiency o f the use o f public resources. Generating savings and improving the efficiency and effectiveness and thus greater value for money o f spending requires that the underlying Public Financial Management (PFM) systems operate effectively. GoG's plans for improving the effectiveness o f the systems are outlined inits Short-Term andMedium- Term Action Plan ( S T M T AP), which has recently been updated to include revised costings o f the activities identified. 3.2 The rest o f this chapter looks at progress in each o f the ST/MT AP priority areas.33 It begins with a review o f the cross-cutting themes o f credibility, predictability and transparency o f the budget process, before turning to an examination o f progress ineach o f the focus areas inthe Action Plan. Cross-cuttingthemes Credibility of the budget 3.3 Measured in terms o f the difference between approved allocations and actual budget expenditures, budget credibility continues to represent a challenge for the Government, particularly in terms o f allocations for MDAs. Whilst inoverall terms the execution o f the 2006 budget was reasonably close to the planned aggregate level (despite increases in wages and energy subsidies causing a slippage in overall aggregate fiscal discipline), the differences at MDA level were significant. Table 3.1: ExpenditureDeviationsbetweenOriginalBudgetedand Actual Outturnsfor 20 LargestBudgetHeads,2004-20061 Budget Year Total expenditure Total expenditure Variance in excess of total deviation' variance3 deviation4 2004 12.4% 25.9% 13.4% 2005 8.0% 33.3% 25.3% 20065 6.0% 28.8% 22.9% Notes: 1. Datacover discretionaryandstatutoryexpenditures. 2. Figuresrefer to the absolutevalue of the differencebetweenactual outtumsandoriginal budgetedamount, expressed as YOof original budgetedamount. 3. Figures refer to the sum of the absolutevalue of deviationsas aproportionof the total budgetedallocationfor primary expenditure. 4. Percentage differencebetweenexpendituredeviationsand expenditure variations(previoustwo columns). 5. CAGD preliminary data, pendingconfirmationby the Auditor-General. Sources: MoFEP, CAGD (seeAnnex 1). 33Excluding Focus Areas 8 (financial sector program) and 9 (capacity building), which are either outside of the mainPFMareas or indirectly covered as a cross-cutting issue. 30 3.4 Although the budget deviation index (BDI) (Table 3.1) improved slightly in 2006 compared to the previous year (6 percent in aggregate and 29 percent by MDA compared to 8 percent and 33 percent, respectively), the BDI was nonetheless still sizeable, particularly at the MDA level. Weaknesses in implementing budgets as planned are also demonstrated by deviations across line items.34Inthis regard, greater than expected spending on payroll has been offset by systematic under-spend o f domestic investment resources inrecent years. 3.5 These deviations reflect weaknesses in budget planning, particularly for wage bill planning, and costing of MTEF programs and activities, and in the procedures for initiating spending on investment items. In addition, as indicated above, a significant factor contributing to these deviations i s the difference in the way contingency amounts are reported in the budget compared to the CAGD reports; comprehensive reporting on contingency by MDA inthe CAGD reports would help to reduce these deviations. Thereafter, additional reductions would depend on implementing further improvements in budget formulation, particularly for investment resources. Better wage bill planning, in the form o f both completing wage negotiations before the beginning o f the fiscal year to feed into the preparation o f the budget, and avoiding further increases in the wage bill share o f GDP, would be a significant step forward in this regard. Earlier approval by Parliament o f the budgets for DACF and other statutory funds (i.e. before the beginning o f the new fiscal year) would also assist in the planning and execution o f both the funds' budgetsas well as those for local governments. Predictability of the budget 3.6 Predictability o f budget implementation involves ensuring that resources to MDAs are provided in accordance with budgetary needs and in line with planned disbursements, given sufficient availability o f cash resources. As the analysis o f quarterly spending patterns across items shows (Table 3.2), not all expenditure items are disbursed regularlythroughout the year; in particular, there are relatively limited expenditures on services and investment inthe first quarter o fthe year. Table3.2: QuarterlyPatternof Expenditure,2006l ~~ ~ ~~ ~ ~~ ~ ~ ~ Q1 42 43 Q4 PersonalEmoluments 18.8% 24.9% 30.1% 26.2% AdministrationActivity Expenses 24.1% 26.7% 24.0% 25.3% ServiceActivity Expenses 11.8% 26.3% 30.5% 31.5% InvestmentActivity Expenses 7.9% 28.7% 24.7% 38.7% Total 17.5% 25.9% 28.3% 28.3% 1. GoGdiscretionary spendingonly, excludingHIPC. Source: EndofQuarter CAGD Reports. 3.7 Whilst it might be expected that the earlier approval o f the budget35and the additional time grantedto MDAs to prepare their expenditure plans, particularly for investment, could have resulted in changes to the pattern o f spending, there is as yet no concrete evidence o f any 34See Table 1 o f StatisticalAnnex 35Beginning with the 2006 budget andcontinuingwith the 2007 budget, Parliamentapprovedthe AppropriationAct inDecember2005 and2006 respectively,upto threemonthsearlier thaninpreviousyears. 31 changes (Figure 3.1). As shown, there i s no discernible quarterly pattern between 2004 and 2005, with which to compare with 2006.36 Throughout the three-year period, the majority o f spending took place inthe second half o f the year (e.g. 57 percent in 2006 as against 55 percent in2004). Figure3.1: Distributionof GoGDiscretionaryExpenditureby Quarter3' Q'I Q4 2004 2005 2006 3.8 Since investment spending i s the least predictable and requires the longest preparation time, it might be expected that this item would benefit from the earlier approval. However, as Figure 3.2, shows, this does not appear to be the case. Investment spending i s overwhelmingly concentrated in the second half of the year (e.g. 63 percent o f total spending in both 2005 and 2006). Figure3.2: Distributionof GoGInvestmentExpenditureby Quarter3' 2004 2005 2006 3.9 Insome cases, it may be that the earlier approval of the budget beginning with the 2006 budget and the possibility to spend earlier has not necessarily filtered through to MDAs, so that they may be operating under the old system where there was no expectation o f significant 36The determination o f a stable quarterly pattern i s not assistedby errors inCAGD outturn data. 37Excludes HIPC, MDRI. 38Excludes HIPC, MDRI. 32 spending inthe first quarter o f the year. There was anecdotal evidence that some were not aware o f the re-engineered business processes for release o f funds to the decentralized treasuries. 3.10 Nonetheless, in terms o f procedures, there has been progress in strengthening in-year budget implementationinrecent years through: Stronger cash management, particularly in terms o f the functioning o f the weekly Treasury management committee and the communication o f MDAs' spending needs and cash availability on the one handand the provision o f monthly cash ceilings on the other. Requirement for MDAs to submit annual expenditure and procurement plans at the beginning o f the year and, increasingly, as part o f the budget preparation process to provide earlier information on the timing o f spendingrequirements to MoFEP. 0 Further strengthening o f commitment controls through procedures which ensure that procurement for services and investment inparticular cannot be begun without ensuring that the necessary resources are available. 0 The facilitation o f the payment process by M D A s through the use of decentralized treasuries. 3.11 The commitment control system involving information flows between MoFEPKentral Treasury and MDAs, and the issuing o f cash ceilings and releases to MDAs, based on cash availability, has ensured that the budget.has been maintained in aggregate, as indicated by the analysis o f budget deviations. However, MDAs continue to face challenges in implementing their budgets ina predictable manner, and this can contribute to increased budget deviations for MDAs. If budget implementation processes were working in an ideal manner, cash ceilings would be expected to be issued by item in accordance with the monthly expenditure plans prepared (and regularly updated and communicated to MoFEP) by MDAs, followed by a similar level o f releases to decentralized treasures for the given month, followed by payment amounts made ina timely manner on those items for which cash ceilings and releases were issued. 3.12 In practice, an analysis o f 2006 budget implementation highlights a number o f specific areas o f challenge, inwhich there are cases where: 0 Cash ceilings and releases show considerable variation across months (e.g. no releases were recorded for investment for MoESS for the period from January to May). There are inconsistencies between cash ceilings and releases (e.g. there were cash ceilings issued each month for investment for MoESS for the period January to May. Appropriated and actual expenditures are similar to each other (Le. small overall deviations) but cash ceilings and releases are lower, meaning that some expenditures take place outside o f the ceiling and release process. Appropriated amounts, cash ceilings and releases may be in line with each other, but expenditures are significantly greater (e.g. Ministryo f Agriculture investment). Actual payments (expenditures) are much lower than appropriated (e.g. Works and Housing investment), suggesting delays or other issues with procurement procedures. 33 3.13 Analyzing the different stages o f the implementationprocess by spending item shows that budget implementation continues to be geared towards meeting payroll obligations, as shown by analyzing the different stages o f the implementation process (Table 3.3). The data indicate that cash ceilings and expenditure releases for both personal emoluments and administration (which i s also related to spending on personnel) follow predictable patterns broadly in line with appropriated expenditures. For administration spending, releases were in line with cash ceilings but these were around 10percent lower than appropriated; in fact, actual expenditures exceeded both releases and appropriated amounts (the latter byjust under 30 percent). For services (non- capital goods and services to support sectoral service provision), whilst releases ended up being broadly in line with planned (appropriated) spending, cash ceilings (which are expected to be related to releases) were around 35 percent lower than releases. Table 3.3: Analyses of 2006 BudgetImplementationby EconomicItem (billion cedis)' Appropriated' Cash Releases Expenditure Releases as Expenditures Ceilings YOof budget as % of budget Personal emoluments 10,011 10,066 10,066 11,415 100.5% 114.0% Administration 2,239 1,987 1,987 2,867 88.8% 128.1% Services 1,242 807 1,24 1 1,277 99.9% 102.8% Investment 5,506 712 1,106 2,836 20.1% 5 1.5% TOTAL 18,998 13,572 14,401 18,394 75.8% 96.8% Notes: 1.Data show GoG discretionary expenditures only and exclude HIPC and MDRI. 2. Including original and Supplementary Appropriation Acts. Source: MoFEP- Activate database. 3.14 More concerning is the fact that investment expenditures are the least predictable and suffer most when either revenue receipts are lower than planned or an expansion o f other expenditure items, particularly payroll, i s approved. As the data for 2006 show, whilst releases were around one-fifth o f appropriated amounts but approximately 50 percent higher than the cash ceilings, they ended up representing around 40 percent o f actual expenditures. Without suitable levels o f capital investment and appropriate maintenance o f this investment, it will be more difficult to sustain improvements inbasic services (e.g. primary education) and thereby the gains from increased growth and poverty spending. 34 Table3.4: Analyses of 2006 BudgetImplementationfor 10LargestMDAs Appropriated' Cash Released Expenditure Releasesas Expenditures Ceilings Yo of as YOof budget budget Ministryo f Education 5,781 5,884 6,022 7,193 104.2% 124.4% Ministry o f Health 2,012 1,310 1,588 2,553 78.9% 126.9% Ministryo f Road Transportation 1,490 286 218 834 14.6% 56.0% Office of Government Machinery 1,155 614 548 493 47.4% 42.7% Ministryo fInterior 1,119 847 856 1,059 76.5% 94.6% Ministryo fDefence 817 357 513 860 62.7% 105.2% Ministryo fFinance 621 223 230 324 37.0% 52.2% Revenue Agencies 595 562 455 643 76.5% 108.1% Ministryo fForeign Affairs. 571 471 451 639 79.1% 111.9% Ministryo fWorks/ Housing. 484 73 150 194 31.O% 40.0% Total 10 largest ministries 14,644 10,628 11,031 14,793 75.3% 101.0% Remaining ministries 4,354 2,945 3,370 3,602 77.4% 82.7% TOTAL 18,998 13,572 14,401 18,394 75.8% 96.8% Note: 1.Data show GoG discretionary expenditures only and exclude HIPC. 2. Including original and Supplementary Appropriation Acts. Source: MoFEP- Activate database 3.15 Examining the same type o f analysis o f budget implementation for the largest MDAs (Table 3.4) shows that those MDAs with a significant share o f investment in their domestic budgets (e.g. Road Transport and Works and Housing) have lower cash ceilings and releases than those with lower shares o f investment, reflecting the relative unpredictability o f the implementation o fplannedinvestments, both interms o f Treasury release o f resources as well as the difficulties inMDAs' implementation o f investment projects (the relation between these two elements i s discussed inthis Chapter below). 3.16 Some o f the reasons for these challenges both for spending items and across MDAs may include: Lack o f adherence to procurement procedures by MDAs, due to lack o f familiarity o f these procedures or otherwise. The effect o f this may be felt through cash ceilings being issued but no releases made due to not fulfilling the requirements for authorization o f procurement, specifically, the issuance o f a commencement certificate to the MDA by MoFEP. This is likely to be a particular problem for investment and, to some extent, services. Limitedinformation on MDA expenditure requirements through the year, due to the lack o f comprehensiveness and updating o f expenditure plans by MDAs, including the lack o f adherence to the requirement to submit procurement plans, thereby undermining the ability o f MoFEP to take into account their expenditure timing needs during budget 35 preparation and the initial phases o f implementation (and thereby affecting the timely issuance o f cash ceilings). 0 Problems or errors in the recording o f commitments inthe paper-based system, such that the inputting o f commitments in the database is not comprehensive, although they are following the correct procedures. 0 The paper-based system may affect the actual timing o f releases relative to their expected timing(inline with cash ceilings). Paper-based procedures for requesting releases, particularly from the district level, may also affect the timing o f releases. This year, for example, no releases are reportedto have been made for education spending in districts on services and investment from January through May. An important factor appears to be the detailed processes required (including submission o f work plans and monthly cash requirements) to get the requests for expenditures from the districts up to the headquarters. 0 Commitment control system may not capture all expenditures, e.g. payment o f back pay, once pay negotiations are completed or the procedures for bringing personnel onto a particular pay grade (e.g. for newly qualified teachers). 0 It is possible that some extraordinary expenditures may otherwise be authorized outside o fthe commitment control system, although there i s no evidence o fthis. 0 As discussed above and as permitted by FAA, expenditure reallocations, or virements, are made within budget items during the year.39 Ifsome o f these reallocationswere made retroactively or across items, then one would not necessarily expect resources to follow the pattern o fphases inthe commitment control process. 3.17 Further study would be requiredto analyze the extent to which each o f the above reasons contributes to weakening budget implementation at MDA level. From this detailed analysis, a set o f corrective measures could be drawn up. Budget transparency 3.18 Budget transparency involves comprehensiveness and accuracy o f the information, timeliness o f its availability, and accessibility to as wide an audience as possible. GoG's commitment to improving the public's access to budget information i s evident. There i s already a significant amount o f information on the MoFEP website, .including current and past Budget Statements and Economic Policy, the Minister's budget speeches, other officials' speeches, analyses o f debt trends, and a number o fmonthly CAGD budget execution reports. 3.19 Nonetheless, some o f the information could be made available in a more timely manner. The Budget Statement itself is made available immediately, both inprint and inelectronic form, and representatives o f civil society report that availability o f the budget to the public has improved. Less progress has been made on reporting on actual budget spending. The end-of- 39The FAA permits MoFEP and MDAs to make extensive administrative reallocations (e.g. M D A s may make changes within economic items with the exception of Item 1, and across items by permission of MoFEP within the overall MDA total) without recourse to Parliament. Ifthe aggregate expenditure ceiling i s likely to be breached, the Law requires that a Supplementary Budget must be approved. 36 year Financial Statement and audit reports are not easily available to the public. Interms o f in- year reporting, whilst some progress has recently been made on posting monthly CAGD reports on the MoFEP's website, further improvements are recommended. InNovember 2007, the most recent report posted on the website was for March 2007.40 The value o f this budget information i s in its immediacy, not as a historic reference document. Keeping the monthly expenditure information up-to-date should be a relatively simple process, but it may require establishing a regular (institutional) routine to ensure that the posting o f the information i s systematic and completed within no more than 4-6 weeks after the end of the month. At the same time, the monthly budget execution reports and the Annual Financial Statements contain numerous errors, including column totals that don't matchthe figures inthe columns, transposition o f expenditures figures between lines, and differences in the recording o f the same item across different tables, which hamper good fiscal reporting andrender fiscal analysis difficult. 3.20 Increasing accessibility and understanding o f the public to budgetary information may be more o f a challenge. Firstly, relatively limited access to the internet, particularly outside of Accra, limits the general population's ability to gain access to the information on the website. Secondly, the technical nature o f the information, and its degree o f aggregation, are understandable to a relatively small audience. More timely preparation and dissemination o f the citizen's budget would be useful; in 2007, the citizen's budget was not made public until mid- year. Finally, increasing demand from Parliament for understandable information on planned and actual spending would help clarify the needs o f the wider public and give motivationto GoG to provide this type o f information. 40 As of end-November 2007, the October fiscal report had been issuedby CAGD. At that time, however, the March2007 CAGD reportedwas the latestpostedonMoFEP's website. 37 Box 3.1: BudgetInformationfor the Wider Public timely, accurate, comprehensive andusehl information onthe state's fiscal activities helps ensure accountability o f the government to its population. Inthis regard, GoG's commitment to improving the public's access to budgetinformation is evident, includingactively seeking engagement fromthe public inthe budget-makingprocess, makingavailable the BudgetStatementto civil society, the mediaandthe wider public, andprovidingfiscal informationonMoFEP's w onetheless, some ofthe informationcouldbe made available ina more time1 public, bothinterms o The following tablep o fbudget information which could more widely, taking into account the: (i) accessibilityo f information; (ii) I information: and (iii)dinestibilitv o f the information. timeliness o fthe provisiono f Type o f Information Current Dissemination Annual Budget Statement InprintandonMoFEPwebsite Supplementary Budget MoFEP website Minister's Budget Speech InprintandMoFEP website Widely disseminated Appropriation Act Not readily available to the wider Couldbe addedto MoFEP website public Citizen's Guide to the Not available to the public ina Whenprepared, couldbe added to the Budget Statement timely manner website GPRSII NDPC website MoFEP link to NDPCwebsite could bemade Mid-Year Budget IIfprepared, notpubliclyavailable Couldbe added to MoFEP website Statement Budget Guidelines I Not publicly available Couldbe added to MoFEP website (circular) I Macroeconomic Adhoc dataheports are available Links inthe MoFEP website could be dataheports on MoFEP website made to the regular macro reports producedbyBOG Monthly CAGD fiscal MoFEP website Timeliness has been anissue -should outturn reports be publishedon the website as soon as itisready (andwithin4-6 weeks of end ofmonth) CAGD year-end financial Not easily publicly available Couldbe added to MoFEP's website statements Audited accounts Not easily publicly available Couldbe added to MoFEP's website, or links to GAS' website could be made, when operational. Audit reports Not easily publicly available Couldbe added to MoFEP's website, or links to GAS' website could be I made, when operational. Awards o fprocurement Not easily publicly available Couldbe addedto MoFEP's website. contracts Links to PPA website couldbe made. I 3.21 Box 3.1 above and Annex 2 provide additional suggestions on how to make hrther progress on improving budget transparency. To go beyond the use o f websites and improve accessibility and timeliness o f budgetary information, it would also be worth considering dissemination o f key budget information in different formats, including: (i) more use o f the print and radio/TV media; (ii) access points, such as libraries; (iii) public external groups, such as NGOs or civil society organizations who work with communities; and (iv) development o f a 38 program to build public awareness o f the importance and relevance o f the budget and the budget process, incorporating a series o fpublic district/village meetings. ShortandMedium-TermAction PlanFocus Areas FocusArea 1-Fiscalpolicy management 3.22 The Government recognizes that stronger fiscal policy management will require greater analytical capacities in order to ensure that the fiscal impact o f potential revenue measures i s taken into account. As the economy develops and greater domestic resources are directed towards infrastructure investment, a strong analytical basis for revenue projections will be needed to ensure that sufficient resources are available. To improve the analytical basis for these projections, including the likely fiscal impact o f proposed tax policy changes, MoFEP i s establishing a Tax Policy Unit (TPU). The Unit i s currently staffed with personnel from the Policy Analysis Division and will be supplemented by Technical Support staff (recruited from outside o f the civil service). Its initial analytical capacities will be supported by technical assistance fundedby GTZ and the Swiss government. Issues currently being analyzed include a review o f exemptions, and implementation o f the new Excise Duty Bill, and possibilities o f broadening the tax base through vehicle registration. 3.23 Onthe expenditure side, the challenges o f fiscal management, particularly o f keeping the wage bill under control and o f providing energy subsidies whilst addressing energy shortages, have been covered extensively in Chapter 1. The discussion below on public investment (from paragraph 3.81) suggests that, in the short term, it will be particularly important to ensure appropriate economic and financial appraisal and value for money analyses for projects using resources mobilized through government borrowing on the international capital markets earlier intheyear. 3.24 In order to learn more about how service delivery is affected by the budget implementation process, the government has launched two public expenditure tracking surveys (PETS) covering the health and education sectors. The PETS will help identify factors contributing to spending inefficiencies and provide recommendations to improve value-for- money inthese sectors. FocusArea 2 -Budgetformulation/preparation 3.25 Inrecent years, the Ministryo fFinance andEconomic Planning(MoFEP) has made great strides in improving the budget preparation process, and the 2008 Budget Guidelines indicated . that MoFEP i s continuing to strengthen the budget process. Progress is being made in particular in: 0 Improving the presentation o f the budget to make it more comprehensive and easier to follow. 0 Facilitating budget implementation and implementing good practice in budget management by ensuringthat the Budget i s appropriated before the endo f the year. 0 Linkingbudgetaryallocations to GPRS priorities throughthe Activate databasesystem. 39 Strengthening the analytical scrutiny o f budget proposals and thereby improving the effectiveness o fbudget hearings. 0 Greater participation and engagement o fthe public inthe budget process. 0 Increased availability o fbudget information to the public. 3.26 GoG has consolidated improvements it had introduced in previous budget years. Specifically, as with the 2006 budget, the 2007 and 2008 Appropriation Bills were approved in December, prior to the start o f the year. This facilitates budget implementationby ensuring that budget implementation plans, linked to cash projections, may be made before the start o f the fiscal year. Attempts are also being made to bring forward the preparation and ap roval o f the budgets for Statutory Funds and thereby improve the credibility o f their budgets! The latter would help improve the predictability o f available resources and enable spending for these funds to take place from the beginning o f this year. 3.27 The significant gains made inthe comprehensiveness o f the Budget Statement have been maintained, with improved coverage o f IGFs, externally-financed expenditures and Statutory Funds. In the 2007 budget, the presentation o f IGFs is more comprehensive, and MDRI expenditures were included inthe 2006 unaudited accounts. 3.28 Interms ofbudget transparency, the reduction inthe number of activities has potentially made the budget easier to read and facilitated the process o f linking with policy objectives through making the coding process less burdensome. 3.29 As will be discussed in more detail below, the requirement to submit procurement plans during the budget preparation process has potentially helped with in-year budget planning. However, not all M D A s adhere to the requirement to submit such plans, thereby undermining the ability o f MoFEP to take into account their expenditure timingneeds duringbudget preparation. 3.30 The GoG recognizes that the process o f facilitating the public to understand and engage with the budget process is important to buildincreased transparency and lead to better spending outcomes. Commitment to greater public participation in the budget process is clear. GoG has begun the consultation process for the 2008 budget early, with a call for the public to provide comments and advice on priorities for next year's budget appearing in the national media. It could be useful also to hold a series o f public budget workshops both to get feedback during budgetpreparation as well as to inform the public about actions that are beingtaken inresponse to issues raised duringthe consultationprocess. 3.31 Progress has been slower in strengthening the linkages between GPRS priorities and medium-term budgetary allocations through the MTEF process. With immediate pressures on the recurrent budget, including on the payroll and on energy subsidies, it is difficult for MoFEP and MDAs to take a more strategic view for non-wage discretionary expenditures. 4'The budget of the NHIF was approved before the end of the year (December 15, 2006). The budget of other Statutory Funds were approved during the first quarter of the year (GetFund on March 22, 2007 and DACF on March22,2007). 40 3.32 At the same time, there is concern about the operationality o f the MTEF, given weaknesses inbudget planning as evidenced by the significant budget deviations at MDA level. There appears to be a disconnect between the detailed MTEF activities under objectives and programs andthe ability to allocate these resources to these activities inpractice. This reflects in part the large number o f activities, making it difficult for Parliament and others to see how resources are allocated to meeting specific government policies. With the 2007-2009 MTEF, the number o f activities was reduced from several thousand activities to 45 standard activities. However, whilst at the aggregate level the MTEF provides medium-term information and includes indicative totals for individual MDAs by source o f funding, the detailed MDA Estimates (contained inseparate volumes) include information only on the upcomingbudget year and do not provide detail on indicative forward expenditures by activity. At the same time, the sector strategies underpinningthe MTEF are not clearly set out. Box 3.2: Improving analytical capacities for budgeting Strengthening the linkbetweenobjectives, policies andresource allocations is an important objective for improving the MTEF and ensuring better linkage with GPRS policy priorities. It is important that the allocations o f resources are realistic, comprehensive o f all resources, and reflect overall financial and physical capacity constraints. Improving MDAs' ability to analyze the cost-effectiveness o f alternative options for meeting policy objectives, determine what activities will be required, and how much these activities are likely to cost is critical inthis regard. There are often considerable inefficiencies inthe ways that resources are being used, such that existing resource allocations provide little guidance as to the true costs o f providing services efficiently. These problems are exacerbated by the fact that financial management often provides limited detail o f the unit costs o f providing a particular service or runningan institution; whilst the informationmay be available, locating it requires considerable analysis. Thus, improvingthe analyticalbasis for budgetinginvolves a longer-termprocess o fbuildingupdetailed informationon the costs andbenefits o f Government services and activities. Broadprograms(as distinct from objectives) may be useful to build this information in such a way that it is clearly linked to government objectives, thus allowing setting priorities among those on an informedbasis, but that is not so detailedthat the overall strategic direction is lost. Since comprehensive costing exercises exert substantial and resource-intensive information and analytical demands, the initial priority should be to examine where resources are currently being deployed and to identify those activities which can be undertaken more efficiently, leading to cost savings. It will be important to improve information flows on resources to MDAs, including actual and planned disbursements o f external resources, and consolidated information on investment programs, includingallocating investment resources inthe short andmedium term onthe basis o f total project cost, as opposed to discretely ona year-by-year basis. Enhanckg analytical capacities in MDAs, as well as in MoFEP, will assist in this process. Specific training on budget policy analysis for Budget Division staff in MoFEP can facilitate the evaluation o f MTEFand expenditure proposals from MDAs. Similarly, training of MoFEP andMDA staff inbudget planningand evaluation techniques (both direct training and training-of-trainers) could be undertaken. Finally, it would be usehl for MoFEP and NDPC to develop joint programs for strengthening 41 3.33 In effect, planning of allocations seems to be largely a mechanistic process. Non- discretionary expenditure items (primarily, personal emoluments and administration) for programs and activities are prioritized separately from those estimates which are more discretionary (primarily, services and investment). It i s still early days in moving away from a more incremental budgetingprocess to one where allocations are based on detailed analyses o f the likely cost effectiveness o f different policy options to meet policy objectives and the identification o f efficiency savings. 3.34 Ultimately, these weaknesses are a reflection o f capacity constraints at the MDA level. Whilst there have been improvements in the process o f MDAs' review o f their sector policies, nonetheless analytical capacity constraints mean that manymedium-term sector strategies are not fully costed, realistically incorporated into the forward budget estimates, particularly with multi- year investment expenditures, and help to strengthen the process o f expenditure prioritization. At the same time, in-year reductions in allocations in one year have an impact on the reliability o f the estimates for forward years. In order to make the MTEF at sector/MDA level more meaningful, it would also be useful to develop progressively the format, content and analysis o f MTEF strategies to provide clearer guidance for the preparation o f budget estimates. Broad descriptions o f the strategies underlying the allocations would provide a better basis for analyzing the appropriateness o f these allocations and hence the justification for MDA budget requests. At the same time, it would be useful to try to simplify the process by analyzing broader-based programs rather than detailed objectives (see Box 3.2). GoG's and MoFEP's emphasis on improving the relevance o f budget hearings may provide an opportunity to strengthen this message. 3.35 The inability to report during budget implementation on the same basis as the very detailed MTEF outputs and activities also hinders the linkage to overall objectives; in other words, there is currently not a mechanism to link activities to resources during budget implementation. The existing classification system used by CAGD does not include the activity so reporting on expenditures may not be done on the basis o f plannedactivities, such as those already recordedby the National Expenditure Tracking System (NETS)43. 3.36 In order to strengthen budget formulation, including the relevance of the MTEF, the Government could build on the findings and recommendations o f the "Report on deepening the MTEF process in Ghana" which was commissioned in mid 2007. Most likely, refocusing the MTEFwill require to make it less detailed and more strategic, including: Incorporating wage-related expenditures (items 1 and 2) into the budget planning/prioritisation (MTEF) process to ensure that all resources are included in MDAs' strategic expenditure plans (andthus that appropriate trade-offs are made taking into account all resources). Examining ways to improve the strategic budget presentation to ensure that the links between policies and budget allocations are clearer, more succinct, and more understandable for Parliament. Discussions/workshops between MoFEP and 42Although it appears that such codes are being worked on. 43NETSis the CAGD systemto generate routine monthly expenditure reports based on accounting data. 42 Parliamentarians (both PFC and PAC) could usefullylook at the latter's requirements for improving budget scrutiny. 0 Examiningpossible ways to improve the role o f Cabinet in setting policy priorities and expenditure trade-offs across sectors. 0 Examining budget classification requirements to enable strategic budget plans to be classified (and thus analyzed) inthe same way as actual allocations. 0 Examining ways to improve the credibility o f outer year projections. Focus Area 3 -Budget implementation 3.37 Improvements inbudget implementationinrecent years have been concentrated on three main areas: (i)strengthening the commitment control system and ensuring that resources are made available for implementation at the time that they are needed; (ii) facilitating the payment process through the introduction o f decentralized treasures and laying the groundwork for moving to a Treasury Single Account (TSA); and (iii)improving the timely availability o f budget implementation and accounting information through the implementation o f an integrated expenditure management system (BPEMS). 3.38 Procedures for the implementation o f the budget should ensure that resources are available to MDAs predictably and inaccordance with the appropriations. Inthis regard, budget predictability involves the processes o f knowing what expenditure commitments are planned over time (the timing o f releases and commitment control) and ensuring the appropriate amount o f liquidresources are available to meet these obligations (cash and revenue management). 3.39 Ensuring appropriate control of commitments and cash management continue to be a priority for MoFEP. The Treasury management committee continues to be operational and has improved the management o f cash resources, thereby reducing the cost o f government cash holdings. Bank accounts are being consolidated, with the eventual goal o f establishing a Treasury Single Account (TSA). 3.40 In terms o f cash releases, MDAs agree that the realigned treasuries have improved the speed o f processing o f payments and the release o f finds, particularly for administration. However, as indicated above, the analysis o f spending patterns across items over time showed that there i s a greater emphasis on spending services and investment duringthe second halfo f the year. The analysis o f releases during 2006 compared to monthly cash ceilings indicated that releases particularly for services and investment are not timed in line with the warranted amounts. These efforts are strongly supported and the review encourages government to take Wher action to address factors contributing to variations in budget implementation from commitments through actual expenditures. Mention was already made o f the lack o f releases being made to districts for education spending for services and investment. An important factor appears to be the detailed processes required (including submission o f work plans and monthly cash requirements) to get the requests for expenditures from the districts to the headquarters. 3.41 It would be useful to study how to disseminate and simplify procedures for making requests for the release o f funds, whilst still maintaining effective control over commitments. One option is to use the budget road shows to improve MDAs' understandingo f revised business 43 processes. As the use o f IT in government grows, it might be worth investigatingways to move away from paper-based systems for these approval procedures. 3.42 The impact o f delays in releases to MDAs' accounts due to not meeting required procedures also extends to Statutory Funds. In2006, releases to NHIF represented around half o f the level collected by the levy. Not only did this have an impact on the budget execution o f the NHIF, but also the holding o f these monies as cash balances represents a cash management issue. 3.43 Encouraging progress has been made over the last year on BPEMS. Five modules (purchase order, accounts payable, general ledger, accounts receivable and cash management) are being operated by a number o f MDAs on a pilot basis, supplemented by continued manual processes. Monthly reconciliation reports are produced. Pilot MDAs report that there are no major problems with using the system. GoG appropriately commissioned two audit reports o f the BPEMS system, which highlighted a number o f hardware and software issues, including outdated hardware and limited server capacity. GoG has rightly undertaken to implement the audit's recommendations. The emphasis on ensuring that existing modules are working properly before rolling BPEMS out to the districts i s appropriate. In the meantime, it would be appropriate to continue to use the existing budget planning and warranting systems (Le. Activate) untilthe replacement system is fully operational. International experiences o f introducingIFMS are useful. These would suggest that, given the comprehensiveness o f the new system and the degree o f migration requiredfrom multiple existing systems, implementation o f the new system will need to bemanaged carefully inorder to avoid disrupting the core budgeting and accounting processes. In particular, managers need to review business systems and processes, streamline and re-engineer existing processes and procedures, and train staff within the context o f the transition from the existing to the new system. 3.44 Interms offiscal reporting, timeliness ofreporting improvedlater in2007. While the July 2007 CAGD report was issued six weeks after the end o f the month (September 14), the October 2007 report was the first released within the good practice standard o f 4 weeks after the end o f the month (November 23). Sustaining gains on timeliness is critical and the next challenge is to improve the comprehensiveness o f reports by including externally financed project expenditures and internally generated finds by MDA. Attention would also need to be paid to improvingdata accuracy through careful data reconciliation before both monthly budget execution reports and the Annual Financial Statements are finalized. Focus Area 4 -Financial regulatory and managementframework 3.45 This component of the S T M T Action Plan focuses on two main areas, procurement and internal and external audit. The issue o f procurement i s the subject o f a separate chapter and volume (Volume II), whilst the role o f procurement in the budget process is dealt with above. Thus, the discussion inthis sub-section concentrates on internal and external audit. 3.46 Concerning external audit, the Ghana Audit Service (GAS) continues to show progress in clearing the backlog o f audits and submitting the audited annual accounts prior to the statutory deadline o f 30 June, with the final 2005 Consolidated Fund accounts completed on time. The 44 final 2005 MDA audits were completed in January 2007.44 The 2006 annual accounts for the Consolidated Fundwere submittedby CAGD to GAS on 26th March 2007; the report on MDAs' accounts has not yet been submitted. The current status o f financial statement audits i s set out in Table 3.5. Table 3.5: Current status of auditsof financialstatementsby GAS Financialstatements Status' Comment* 1. Consolidated Fund 31/12/05 Current 2. M D A s 31/12/05 Current 3. ForeignExchange receipts and payments Draft 31/12/05 Almost current 4.Public Boards, Corporations & Other Statutory Extensively delayed Overdue Institutions 5. Pre University Educational Institutions Draft 31/12/05 Almost current 6. District Assemblies and Traditional Councils 31/12/05 being complied Slight delay 7. District Assemblies' CommonFund 31/12/01-04 under review Delayed Notes: 1.The date refers to the year to which the audit refers. For example, 31/12/05 refers to the audit for the fiscal year 2005. 2. Refers to whether or not the audits are within the statutory deadline (referred to as "current"). . Source: Ghana Audit Service. 3.47 The status clearly reflects the extensive efforts being undertaken to update and have current audited financial statements throughout all public sector institutions. Whilst most entities have been able to positively respond, the Public Boards, Corporations and Statutory Institutions still pose a formidable challenge as most o f the accounts and financial statements continue to lag behindfor several years. The additional challenges posed are the needto address the findings of the Auditor General where the accounts o f the Consolidated Fund for the year ended 31 December 2005 were qualified on two counts: (i) unsubstantiated cash balances amounting to 4,565 billion cedis; and (ii) uncertainty regarding the recoverability o f loans amounting to 6,710 billion cedis. 3.48 The Executive's timely follow-up to the findings o f the Auditor-General (A-G), particularly where the accounts are qualified, could be strengthened. As required, audited entities provide a formal response to A-G on its findings in the audit reports, although the responses vary interms o f extensiveness and their timeliness. Part o f the delay intheir response relates to delays by PAC to debate the A-G's report. The A-G keeps a record o f its recommendations on audit reports, the response by the entity, and the actions undertaken by the entity against each recommendation. However, the A-G does not report on the follow-up to these responses, in terms o f verifying actions undertaken, in its subsequent reports, although it has indicated its plansto do so infuture, at the request o fPAC. TheInternal Audit Agency 3.49 The Internal Audit Agency (IAA) was established by the 1nternal.Audit Agency Act, 2003 with the objective to co-ordinate facilitate and provide quality assurance for internal audit activities within M D A s and MMDAs. As the internal audit function i s still being established, it i s too early to assess its effectiveness, although important progress has been recorded. 44 Althoughthe audit report is datedDecember 31, there was a delay inmaking these audits available. 45 Specifically, the IAA had set up 79 internal audit units (IAUs) by the end o f 2006. The operational framework of the internal audit units, with procedures still being put in place or under review, has been enhanced by the adoption o fpublic sector internal audit regulations and standards and the use o f an internal audit manual and programs. The operational efficiency o f the MDAs and MMDAs has been measured and monitored by the IAA by reviewing the submissions received relating to the: (i) internal audit charters; (ii) audit plans and (iii) annual quarterly audit reports. The quarterly internal audit reports have been further subjected to scrutiny for adherence to quality standards and compliance with statutory regulations and procedures. The total submissions o f quarterly reports receivedduringthe four quarter period (4" quarter 2005 to 3rd quarter 2006) reflected 121 reports received out o f a possible estimated 320. Whilst this rate o f submission may appear low, it i s reflective o f the need to further strengthen the support being given to the IAA as it aims to obtain higher compliance from IAUs whilst at the same time maintain quality reporting. The 2006 IAA annual report highlights some o f the challenges o f obtaining higher IAU compliance, including capacity constraints amongst IAU staff incarrying out their duties according to the required standards. GhanaAudit Service and the Internal Audit Agency 3.50 The relationship betweenthe IAA and Ghana Audit Service (GAS) is good and shouldbe strengthened by fostering formal dialogue between the two institutions to examine areas o f commonality. Ofparticular interest are the special audits being undertaken. Performance audits are beingundertaken byboth institutions. GAS reports are made to Parliament whilst those o fthe IAA are directed to the appointing authority. The underlying objective of both initiatives is to promote economy, efficiency and effectiveness in which public resources are being utilized. Both institutions have the mandate to undertake the audits. The IAA is a relatively new institution and its work and coverage i s continuing to develop at a rather rapid pace. The GAS also continues to broaden the scope o f work which it undertakes and it has been noted that technical assistance has been requested to even further improve the technical skills o f its staff to undertake forensic and procurement audits. Undoubtedly, an overlap appears imminent, which would not reflect the best use o f the limitedresources available. 3.51 Given these limited resources, external audit institutions are encouraged to adopt where possible the work o f internal audit institutions where the standards adopted by the internal audits are sufficiently robust to permit the external auditor to place reliance on that work. Formal dialogue would serve as a first step to achieving that objective. The IAA (2007 to 2009) Strategic Plan should then be updated to capture these initiatives within a defined time scale. Shared planningo f audit work would also assist indrivingthis agenda forward. The oversight role 3.52 Responsibility to enforce and follow up o f auditingfindings is given to the Audit Reports Implementation Committees (ARICS).~~ARICs are required under section 30 (1) o f the Audit Service Act 2000 to be established in all ministries, departments, agencies, metropolitan, municipal and district assemblies. ARICs are responsible for following up Auditor General and Public Accounts Committee recommendations as well as internal audit reports. The majority o f 45As inother countries, these committees assist MDA management to ensure that its funds are spent appropriately. 46 the existing ARKSare newly established during 2006 and comprise approximately 25 percent o f the total required number. The effectiveness of any audit findingwhether internal or external will be determinedby the timeliness and fortitude by which the oversight body exercises its authority inthat process. ARICs have avital role to playinthisprocess andtheir ability to performwill be paramount to strengthening the accountability institutions. The limitation o f resources may hinder the establishment o fARICs to beundertaken inallMDAs andMMDAs. Thereis thus the need to prioritize the available resources to where the greatest possible gains and maximum impact can be achieved whilst bearinginmindthe need for compliance with legal obligations. 3.53 There i s an issue o f the timeliness o f Parliamentary consideration o f the Auditor General's reports due to resource constraints o f the Committee. The Public Accounts Committee (PAC) was unable to consider the 2000-2002 MDA reports laid before Parliament before the end o f the Parliamentary session and hence, by Parliamentary rules, the consideration o f the reports lapsed. PAC deliberated on the Auditor General's 2003 report on the accounts o f MDAs, laid before Parliament inMarch 2005, and its report was adopted by the full House inJuly 2006. In October 2007, PAC has considered the Auditor-General's 2004 and 2005 reports o f MDAs' accounts, presented to Parliament in February 2007. The audited report o f the 2006 Consolidated Fund was presented to the Speaker o f Parliament late in June 2007 but, as of end November, the report was yet to be presented to the Public Accounts Committee. Consequently, the report hadnotbeen laidbefore the full House at that time. External scrutiny 3.54 There has been notable progress in strengthening external scrutiny inrecent years, which i s critical for ensuring accountability for the appropriate use o f public resources. For the first time, the PAC's hearings on the 2004 and 2005 MDAs accounts were open to the public in October 2007. Opening the hearings to the public will help to hold the executive to account by scrutinizing the audit results against the testimony o f executive officials and other experts, whilst at the same time raising public interest and awareness o f important policy issues. In addition, public hearings may help create a greater understanding amongst the public both o f the Auditor- General's function and o f PFMoversight more generally. 3.55 Accountability for the use o f public funds is also important during budget formulation. The Parliamentary Finance Committee takes an active role in scrutinizing the budget proposals; however, their work is hampered by the excessive detail in budget information for individual MDAs, and the lack o f historical data (such that spending in recent previous years is not provided in the budget). The latter makes it difficult to follow and link the achievement o f overall policy objectives and corresponding medium-termbudget allocations. These factors limit Parliament's ability to scrutinize whether or not resources are being planned efficiently to meet the Government's stated policy priorities. Recommendations have been made above on strengthening budget formulation which should also facilitate Parliamentary scrutiny o f budget prop0sals . 3.56 Powers for investigating fraud and corruption in the public sector rest with the Serious Fraud Office (SFO), the Commission for Human Rights and Administrative Justice (CHRAJ) and the Ghana Audit Service (GAS), but it is the judicial system (through the Attorney General and the courts) which i s responsible for prosecuting cases. Ingeneral, SFO and GAS respond to 47 reports o f malpractice, rather than initiating investigations themselves. Other measures undertaken in recent years intended to strengthen governance in the use o f public resources include the introduction o fthe Procurement Act and the Whistle Blowers Act. 3.57 The strengthening of internal audit, through the efforts o f the Internal Audit Agency, is also a positive step in addressing improper use o f public funds. Inthis regard, in July 2007, the IAA has launched a public sector fraud risk assessment across MDAs. The objective o f the assessment i s to enable the government to effectively monitor cases of fraud in the public sector and ensure that responsible public officers play their roles in fighting fraud where ever it is found as well as facilitate the processes o f dealing with people who are alleged to have been involved infraudulent practices. The IAAexpects that discussion ofthe assessment's findings inapublic forum, later in2007, will help identify positive actions for fraud prevention. FocusArea 5-Integrated payroll andpersonnel system 3.58 It is clear that ensuring the full operationality o f the upgraded integrated payroll and personnel system (IPPD2) i s a priority for the Government. Implementation o f the system has been under way since October 2006, when the central payroll for ministries and departments as well as Ghana Education Service (GES), the largest public employer, was fully migrated from the previous IPPDl system, which was then shut down. While IPPD2 has been running, there were some teething problems earlier in 2007. Given that the system's authorizing environment to hire staff into public service proved to beweak, this function has been re-centralized. 3.59 The benefit o f IPPD2 to the government i s that it enables each MDA to run its payroll independent o f all others and to consolidate the results o f the payroll runs. In terms o f payroll administration, a limited number (8) o f pilot M D A s have online access to their payrolls; the remaining MDAs must use the central terminals in CAGD. GoG has a timetable for on-line access for the rest, but in the light o f other challenges to the system it i s reportedly delaying the roll-out for now. GoG's short-term plans to continue to improve the system include upgrading the software, increasing the amount o f hardware to ensure sufficient server capacity in order to prevent downtime duringpayroll processing, improving constant (remote) access to the network, and further user training. 3.60 The upgrading o f the system from IPPDl represents a change inpersonnel management since IPPD2 includes the potential also to manage personnel human resources information, including recruitment, training and skill development, and potentially performance management. The realization o fthis potential o f the system to manage personnel beyond payroll administration will require a number o f agencies across Government to co-ordinate their activities, including OHCS and GES, as there i s currently the separation o f responsibilities for payroll information and for HWpersonnel information. The gradual development o f these further functionalities is expected to follow any changes introduced as part o f the civil service reform program and i s not expected inthe short term. 3.61 In view of the progress made in introducing IPPD2, it is important to address the concerns about the effectiveness and reliability o f the system, particularly in terms o f its robustness, inadequate management and the number o f errors generated. Insufficient 48 management arrangements and inadequate attention to change management may exacerbate some o f these problems. 3.62 The reliance on IPPD2 for the management o f both HR and payroll means that the timeliness, accuracy, and completeness o f data in the system are critical. With the speed o f inputtingrequired for the data on both central government payroll and now with the subvented agencies migrated onto IPPD2, there have been concerns about the accuracy and completeness o f the data, resulting in errors inthe payroll, due both to the speed o f the migration from IPPDl but also to systemic issues. Specifically, the errors appear to reflect a range o f problems, including data inaccuracies (e.g. people being incorrectly identified as ghost workers), database problems, server capacity, as well as system crashes. These have led to errors being made in the size o f deductions and payments made. Other problems include the lack o f pay notices being sent, which together with delays in the transfers to bank accounts, causes confusion to civil servants; the lack o f a remote back-up facility; insufficient back-up generators, and the lack o f documented payment histories, which has led to the inability to validate the accuracy o f salary arrears. The review welcomes the completion inNovember 2007 o f a census (headcount) o f the total payroll o fpublic servants to validate bothnewly andpreviously migrated information. 3.63 In addition to the systemic problems of the payroll and HR system, there are also concerns about the lengthy manual verification procedures to get information on new recruits onto the system. Inthe case o f GES, the largest Government recruiter, this has resulted in the delay o f up to 7 months (October to May) before the new teachers are officially recognized as employed and their full salaries processed through the payroll (this affects around 9,000 new teachers each year).46 Once they are transferred onto the system, they are entitled to receive their backdated wages. Whilst these are not considered to be salary arrears in strict cash accounting terms, the need to make these payments during the year increases the unpredictability o f payroll spending, affecting cash management both for GoG as well as for the individual teachers. Government has indicated that it i s planning to establish a post inKumasi to serve the northern region in order to facilitate the processing and availability o f payroll information to the regional anddistrict offices that untilnow relyon Accra for updates to their payroll details. 3.64 The process o f migrating data for the subvented agencies, which began in September 2006, i s currently on-going, and MoFEP plans to complete this process in 2008. Migration o f the data for subvented agencies has been slower than expected. There are questions over the accuracy o f the data on numbers o f personnel in these agencies, and limited verification o f the data has taken place thus far. Since it i s likely that the speed with which these are migrated i s inversely related to the accuracy o f the migrated data, it would be advisable to ensure that the timetable allows for the appropriate checks on the data to bemade. 3.65 Furthermore, given the need to ensure robustness and appropriate management arrangements o f IPPD2, MoFEP has commissioned two reviews (Performance and Health Check) o f the system. The draft report was issued in August. After the report i s finalized and issued to stakeholders, MoFEP plans to implement the necessary recommendations along a realistic timetable. International lessons o f implementing such systems may be instructive in considering the recommendations o f such an audit (see Box 3.3). 46Prior to that point, they are officially considered to be trainee teachers and are paid allowances as such. 49 Box 3.3: Internationallessonsfor the managementof computerizedbudgetsystems International lessons for managing computerized budget systems may be instructive in consideringthe recommendations o fthe IPPDZ audit. To be effective, implementation andmanagement o fnew systems require ': Clear Govemmen andownership, includingcl clear authority to imple ve involvement, with no undue del Clarity inroles andresponsibilities o f agencies involved. Robust systems ofre-engineered business processesandcontrols, ensuring that sufficient skills andtraining inthe newprocessesare available. Central agencies monitoringandensuring compliance. Effective leadership andactive management, includingadequate management skills, managers with appropriate motivation, andin-house maintenance capacity identified, inplace andproperly costed. Capacityto operate andmanage stemwith the newprocesse cluding sufficiently robust hardware. Adequate resources for long-term operation andmaintenance. Appropriate incentives/sanctions for compliance/non-compliancewith the new system. See DiamondandKhemani, "Introducing FinancialManagement InformationSystems inDeveloping Countries", IMFWorking Paper 05/196,2005. FocusArea 6-Aid and debt management 3.66 MoFEP has strengthened its management capacity o f external financial assistance through the Aid and Debt Management Division (ADMD), which has recently been upgraded from a Unit,with the recruitment of additional staff. 3.67 On the basis o f information from both Government and development partners, ADMD compiles comprehensive information on flows o f external assistance, including the amount o f likely budget support for the coming year(s), the timing o f releases, actual disbursements, as well as comprehensive data on project assistance. Amongst the five largest donors (World Bank, EU, ADB, Canada and Denmark), ADMD receives comprehensive information on projections and disbursements o f project flows for the coming year. However, the overall execution o f official development assistance (ODA) to finance project implementation still falls short o f budgeted targets (Table 3.6). In addition to improving disbursement o f committed ODA, reporting (including execution rates for donors) needs to be improved as discrepancies still persist between ADMD data andthe one collected for the annual CGmeetings (see footnote 28 above). 50 Table 3.6: Overview of Project Disbursements, 2006-2007 2006-Actual vs Projected (YO) 2007- Actual vs Projected (YO)1/ Total Loans Grants Total Loans Grants Total 78 87 71 44 55 32 o f whch: Min.FoodandAgriculture 99 93 104 32 37 29 Min.Education 133 64 190 54 106 30 Min.Energy 130 136 125 53 54 20 Min.Finance and Econ. Planning 146 238 126 26 49 15 Min.Health 61 79 55 53 53 53 Min.Lands, Foresty andMines 43 68 35 33 40 29 Min.LOC. Govt., Rur.Devel., Envir. 156 159 146 31 34 26 Min.Transportation 57 67 39 35 38 25 Min.Water Res., Works & Housing 72 111 47 54 69 43 Min.Trade andIndustrv 11 12 9 30 54 12 1/ Actual by end-September,Projectedfor the year. Source: 2006 -data from ADMDMoFEP, May 2007; 2007-2008 Budget Statement, Annex 18 3.68 Work i s also continuing with CAGD to include flows o f external assistance in CAGD reports. In order to broaden the reportage o f the budget, Government i s taking steps to include information on all loans and grant agreements inthe Government's Budget Statement. With this development, the CAGD reports are expected over time to encompass more complete revenue and expenditure information on externally-funded projects and retained internally generated funds47. As a result of the realignment o f treasuries, which began in September 2006, information on externally-funded projects and on retained internally generated funds (IGFs) will gradually be integrated into treasury bank accounts, the exception being those externally-funded projects that still require separatebank accounts. Focus Area 7-Revenue management 3.69 The 2007 revenue targets assume significant efficiency savings by the revenue agencies. Inrecent years, therevenue agencies havemadeprogress inimprovingtax administration. 3.70 The establishment o f the Large Taxpayers Unit in2004 to provide the approximately 360 large taxpayers with a "one-stop shop" services for direct and indirect taxes has been credited with increasingthe collection particularly o fVAT. 3.71 The establishment o f the Non-Tax Revenue Unit in 2002 has had significant success in increasing the reporting o f IGFs, as well as the amount collected for both lodgment and retention. 3.72 Recent introduction o f the Revenue Protection Unit (RPU) and its mobile revenue protection teams have been particularly successful in increasing indirect tax receipts. In particular, there have reportedly been improvements in CEPS' attempts to capturehrack attempted smuggling o f goods along the border with Togo. 41The 2006 CAGD report and financial statementsreports external loans by sources o ffunding. As for grants, only data for budget support i s provided inthis CAGD report. 51 3.73 Work has taken place inVATS and CEPS on improving IT systems. Inparticular, within the LTU, some degree of computerization/automation o f direct and indirect taxes have resulted inthe greater capture of these revenue sources. The agencies' long-term aim is to establish an integratedIT system that combines both indirect and direct taxes. 3.74 The RevenueAgencies Governing Board has helped to co-ordinate activities across the three agencies and succeeded in increasing revenue receipts in recent years. In terms of reporting, the reconciliation o f accounts with CAGD and RAGBhas improved. 3.75 Nonetheless, efficiency o f tax collection operations is hampered by manual processes. For IRS, for example, it i s difficult to link taxpayers to the sources o f their income. Whilst a unique taxpayer identification number for all business taxpayers operates across all o f the agencies, taxpayer information continues to be registered in separate systems for income tax, VAT, and customs and excise. The RAGBis inthe process o f linking the three systems, but the links are not yet operational. 3.76 Non-compliance i s also an issue for the three agencies. For VAT, this involves under- registration, under-declaration o f turnover and tax, and inflated claims for VAT refunds. Whilst penalties for infractions exist, enforcement appears to be patchy, and there continue to be breaches o f taxpayer requirements for registration and declarations across the revenue sources. Penalties are reportedly set at too highlevels leading to problems with evasion. 3.77 The collection o f outstanding tax arrears continues to be a challenge for the revenue agencies. Arrears across the three agencies (CEPS, VATS, and IRS) totaled around 482 billion cedis (around 2 percent o f total tax revenues) in 2006 compared to around 400 billion cedis one year earlier. Recovery o f these amounts remains relatively limited. 3.78 Looking ahead, GoG has been examining ways to strengthen its revenue administration, including the possibility o f restructuring the way that the revenue agencies are organized and managed, as well as improvements in information technologies through the introduction (e.g. in the case o f IRS) and further integration o f IT systems. To this end, the RAGB has a medium- term program (covering 2007-2009) for strengthening the IT base underlying the agencies. Areas planned to be addressed include: (i)increasing the automation within IRS; (ii) improving the networking and interconnection across agencies; (iii) increasing the comprehensiveness o f information on risk profiling; (iv) improving data integrity; and (v) strengthening the registration and use o f Trader IdentificationNumbers (TIN). 3.79 Areas to address inthe organizational and operational capacity o f RAGB and the revenue agencies include: (i)strengthening capacities for management, including strategy setting and internal audit; and (ii) identifying common management and administrative support systems and harmonizing procedures. Also being discussed are ways to enhance the audit function and thereby improve compliance through strengthened National Tax Audit Bureau: audit strategy, referral criteria, and referral mechanisms. 3.80 The efficiency o f revenue collections and the Government's ability to increase the administrative efficiency including enforcement o f its activities will be critical in achieving its plannedrevenue targets. 52 SCREENING CAPITAL EXPENDITURES, QUALITY AND ITS INSTITUTIONAL ARRANGEMENTS 3.81 GoG i s committed to increasing significantly its planned spending on investment, particularly to modernize and expand its infrastructure. It recognizes the need to strengthenthe management o f public investment inorder to ensure that these resources are used efficiently and effectively and provide appropriate value-for-money. 3.82 N o common framework and set o f procedures exist for the planning and management o f externally and domestically financed public investment. Procedures differ depending on the nature o f the investment and the funding source. Untillast year, the majority (around 60 percent of the value) o f overall investment was e~ternally-financed.~~The planning and management o f these investments tend to be undertaken in conjunction with the relevant development partner. These investments tend to be multi-year in nature and reasonably well-costed. By contrast, for most MDAs (with the exception o f workshousing, and roads/transport) the majority o f investment (by volume) tends to be for small-scale capital items (e.g. vehicles, office equipment, etc), rather than for projects. The majority of investmentis annual. Current proceduresfor screeningand managingpublicinvestmentby MDAs Strategicplanning of investment 3.83 Interms of the strategic planningof investment, the GPRS is intended to be the guiding principle for prioritizing investments. However, it i s insufficiently detailed to enable MDAs to plan their detailed investment programs. Some sectors have a medium-term development program (e.g. roads), but these may not be rolled over and/or linked to the MTEF. Inpractice, broad strategic planning o f investment for the major spending sectors (e.g. health, education, roads) takes place annually, as part o f the annual sector review with development partners, culminating inthe preparation o f the sector's Annual Program o f Work (POW). 3.84 Nonetheless, large variations between investment allocations and outtums undermine the credibility and the integrity o f the MTEF and the annual budget and undermine the ability for MDAsto be strategic intheir investmentplans. Such variances are due primarilyto within-year cutbacks duringbudget implementation due to domestic investment allocations being treated as a residual inbudget management; and overoptimistic budgeting o f spending on both domestically andexternally financedprojects. Identipcation,preparation and appraisal 3.85 The processes of investment project identification, preparation and appraisal differ according to the source o f financing. Projects which are more substantial, many o f which are funded by development partners, tend to be identified through discussions between the development partner and the relevant MDA and typically linked to supporting key sector policy objectives and related program initiatives (e.g. through the Annual Sector Review process). Projects are subject to relatively detailed preparation and appraisal, following the procedures o f 48In 2006, the influence of MDRI meant that the value of domestic investment overtook externally-financed investment for the first time. 53 the development partner with much o f the design and appraisal work undertaken mostly by external consultants. 3.86 Investments which are purely domestically-financed are identified through a decentralized (bottom-up) process, with the M D A s relying on their regional and district offices to gather requests for investment project proposals. Once a project has been identified, it is prepared, costed and appraised by the decentralized department or agency. There appear not to be guidelines for screening and appraisal criteria incurrent use.49 Insome cases, project requests may be made by MPs or District Assemblies. These requests are aggregated by the parent MDAs. Technical specifications and supply-side issues (needs-basis) are likely to be the main determinants inthe selection o f projects, as i s the completion o f on-going projects. Linkages to medium-term resource constraints and overall sector policy and program priorities appear to be less critical factors. In other words, initially-identified projects are needs-based rather than resource-constrained. During budget preparation, the investment proposals are discussed between the MDA and MoFEP and the proposals may be cut back to fit within the MTEF resource ceiling. In general, the use o f in-depth appraisal in the preparation and analysis o f investment proposals appears to be relatively limited. Approval andfinancing 3.87 All capital investments, regardless o ftheir source o f financing, are included inthe MTEF and the annual budget and go through the normal appropriation process. The approval process depends on the scale and type o f financing for the investment. For large, strategically important projects and those involvingexternal financing, Cabinet approval is sought. 3.88 Whilst the MTEF gives three-year resource indications, the MDAsprepare annual budget proposals which are above their ceilings (e.g. in education, for example, the initial total needs- based budget submitted was 75 percent higher than the final allocation o f 7.9 trillion). Given weaknesses in the credibility o f annual budgets (discussed above), particularly with respect to investment, and the practice (verging on the expectation) o f additional top-up amounts following negotiation with MoFEP, planning for a higher budget amount represents a rational strategy for MDAs, although this may affect the efficiency o f the preparation and negotiationprocess. The result i s that investment planning and budgetingremain incremental. This, together with the use o f a separate budgeting process for personnel and related costs, effectively undermines the strategic budget planning approach whereby all recurrent and investment resources should be prioritized and spending trade-offs made within the available resources (the resource constraint). 3.89 However, in some cases, particularly where detailed costings o f investments are limited, MoFEP lacks sufficient information on on-going public investment projects to set realistic expenditure ceilings for the MTEF andthe annual budget and hence MTEF ceilings are unable to take account fully o f forward fimding commitments, both those required to complete on-going projects adequately, and recurrent implications o f investment. There i s thus a break in the feedback loop between the MDAs, tasked with feeding their analytical information on the prioritization and costings o f their investment projects and programs to MoFEP, and MoFEP, 49Whilst there were no doubt guidelines and procedures in place when GoG prepared PIPS in the past, these proceduresdo not appear to be widely usedcurrently. 54 tasked with reviewing, analyzing and incorporatingthis information into the subsequent ceilings. Without the former, the latter cannot be hlly informed. Implementation 3.90 All public investment projects are appropriated through the annual budget process. As part o f the budget preparation process, MDAs are expected to prepare and submit annual procurement plans, indicating the expected monthly timing through the year and size o f likely investments. This i s intended to assist MoFEP with cash management and to ensure the availability o f resources to MDAs to implement the budget through the year. Compliance with this request appears to be uneven. In future, it is planned that the non-submission of procurement plans will prevent MDAs from appearing at budget hearings. 3.91 Efficient implementation o f investment projects i s hampered by lengthy procurement procedures and non-timely releases o f funds. As part o f the strengthened commitment control procedures, releases for investment" are linked to the granting by MoFEP o f a letter o f commencement (LC), also known as a commencement certificate. Before an MDA can enter into (Le. sign) a contract with a supplier, it must apply for an LC. Before granting an LC, MoFEP will ensure that the investment i s included in the budget, and that the amount i s within the relevant monthly ceiling. Without an LC, MoFEP will not release funds for the investment. Whilst these procedures have strengthened the control o f commitments, they serve to slow down implementation o f investments since the specific procedures are not necessarily universally known across MDAs. The result, as shown above, is that domestic investment is concentrated duringthe third and fourth quarters o fthe year. 3.92 The current procedures can lead to inefficiencies in the management o f public investment. The reliance on single year contracts can lead to increased costs when contractors have to remobilize to continue work inthe following year. The concentration o f implementation activities during the latter part o f the year means that contracting capacities are not efficiently utilized through the year contributing to increased unit costs. The small size o f contracts reduces opportunities for achieving economies o f scale and can be expected to further overstretch limited contract supervision capacities. At the same time, revenue shortfalls during the year can result in fbndingreleasesbeingdelayed andbudgets cut-back mid-year. Reporting, Evaluation, and Auditing 3.93 Evaluation o f public investment i s largely limited to externally financed projects and is undertakeneither directly by or with significant support from development partners. The large number and relatively small size o f domestically financed projects restricts monitoring to basic implementation and financial indicators. Internal evaluation within MDAs, through internal audit, i s still relatively undeveloped. A more pro-active role for MoFEP and MDAs in monitoring public investment would help ensure that constraints to the efficient and timely implementation o f investment projects can be identified and addressed, and lessons learnt from the review and evaluation o f individual projects are fed back into the forward planningo f public investment . 50The same procedure applies to service-item expenditures. 55 StrengtheningPublicInvestmentManagement 3.94 MoFEP has recognized that the financing o f large-scale investment projects will require significantly increased analytical and management capacities beyond those already inplace. As such, it i s establishing a Project and Financial Analysis Unit (PFAU) reporting to Othe Chief Director. The objective o f the Unit i s to act as a high-level project evaluation unit to assess and monitor projects (mainly, relating to infrastructure in energy, transportation and water undertaken under public-private partnerships [PPP] agreements) to be undertaken specifically with resources raised from the international capital market. It is intended to function as an "Internal Consulting Unit" for these projects on behalf o f MoFEP and to focus particularly on value-for-money considerations. Two approaches to its assessment work are being considered, either: (i) reviewing (appraising andprioritizing) as a whole the subset o f all projects worth more than US$50 million; or (ii) considering relevant projects (those over the US$50 million threshold) on a project-by-project basis. 3.95 However, measures to improve the identification, appraisal and management o f investment should not be limited to strategic investments. National procedures for project identification, appraisal and approval using domestic resources are poorly defined, are not applied uniformly and could be strengthened. As indicated above, externally-financed projects are subject to more rigorous selection and appraisal than domestically financed projects, and for the former there i s also a more explicit approval process. Moving towards a common process to apply to both domestically and externally financed investments would ensure that all public investment is subject to a common appraisal requirement regardless o f the source o f financing. At the same time, strengthening capacities for costing, appraisal and evaluation would help ensure that investmentrepresents an effective and efficient use o f limitedresources. This will be particularly important if the Government enters into PPP contracts, where international experience shows the importance o f detailed planning and appraisal to ensure appropriate efficiency gains from this type o f financing and better value-for-money than with purely public funds. Finally, overcoming delays in procurement procedures will be important to ensure that the release o f resources for investment and the implementation o f these projects are undertaken with more predictability andtimed throughout the year. 3.96 To improve the implementation o fpublic investmentprojects, the GoG could consider: 0 Strengthening the co-ordinating and oversight function within MoFEP for public investment as a whole. This could take the form o f a gradual extension to the functions andcapacities o fthe PFAU, for example. 0 As part o f this oversight function, it will be important to ensure that strengthened procedures for project identification, appraisal and approval are documented (e.g. through the publication o f investment guidelines or a manual) in order to ensure that the procedures are applied c~nsistently.~'These procedures should apply to all public investment resources, covering both domestically and externally-financed projects and shouldbe plannedand budged strategically through the MTEFprocess. Many countries produce guidelines for the appraisal and management o f capital expenditure proposals in the public sector, including covering public-private partnerships. These provide a consistent framework for all public investment. Examples o f these guidelines may be illustrative. 56 Increasing the capacities in MDAs for the costing and appraisal o f investment projects and the identification o frecurrent cost implications for these projects. Strengthening the link between the budget and the MTEF through expanding the use o f multi-year implementation contracts awarded against the total estimated cost o f projects. This could be facilitated by grouping smaller investments within larger multi-year projects. Enforcing the requirement for MDAs to prepare annual procurement plans once the draft budget i s finalized so that procurement procedures (including obtaining the relevant Treasury authorization) can start before the new financial year commences. Speeding up procurement procedures, including by gaining authorization for entering into contracts. This could include publicizing the revised business procedures in conjunction with the decentralized treasuries more widely. Strengthening internal audit and contract supervision capacities to ensure greater efficiency inthe use o fpublic investment resources. CONCLUSIONAND NEXT STEPS 3.97 The Government continues to make positive progress in implementing its wide ranging program to strengthen PFM. Although it is too early to undertake a full update o f the PEFA indicators, some recent developments may be mentioned. These include: e The assessment o f the procurement system provides information for evaluating the procurement indicator (PI-19), and for progressively improving procurement performance. e Regarding the availability o f information on resources received by service delivery units (PI-23): the GoG launched two PETS exercise early in May 2007 (covering health and education), and these surveys will provide information on resources actually received by fiont-line services, such as schools and health clinics. e With the approval o f both the 2006, 2007 and 2008 budgets before the beginning o f the next fiscal year, significant progress has been made with the measure o f timely budget approval by the legislature (PI-11). e There is greater transparency in inter-governmental fiscal relations (PI-8) with the approval o f the DACF formula before the beginning o f the fiscal year. e Progress in the quality of debt data recording and reporting (PI-17) will be assisted with the use o f CS-DRMS for domestic debt. e The undertaking o f a payroll census will boost the measure o f the effectiveness o f payroll controls (PI-18). e The strengthening o f the internal audit function (PI-21) has improved the outlook for this indicator. e The shortfall inrevenue collections in2006 will have affected the assessment o f PI-3. 3.98 In other areas, however, there is concern that without additional efforts potential gains - may not be realized. These include: 57 In the absence of more complete reporting o f external finance inCAGD reports, it would be difficult to realize potential improvements to the level o f unreported government expenditures (PI-7). This is likely to require the leadership o f CAGD and improved co- ordination between different departments inMoFEP and with DPs. 0 Variations in the implementation process from commitments to actual expenditures will have an adverse effect on the predictability o f expenditure planninginformation provided to MDAs (PI-16) and on the effectiveness o f commitment control (PI-20).s2 Progress inimproving the timeliness o f external scrutiny o f the Auditor General's reports could be undermined if the legislature does not complete their examination within 6 months from receipt o fthe reports (PI-28). 3.99 Building on this Review's findings and in order to further strengthen PFM and ensure that public resources are used most effectively, it would be useful to focus on implementing the following measures, many o f which are already identified in the Government's action plan (see Table 3.7 below). Quick wins 3,100 Buildingon the findings from the commissioned audit o f IPPD2 and the recent census o f public servants, implement corrective measures to address data inaccuracies, the robustness o f controls, and the capacity o f systems to ensure the adequate operationality o f the payroll administration. At the same time, establish a back up system for the existing IPPD2 and finalize the planned migration o f data from subvented agencies onto IPPD2. To reassert control o f the wage bill implement the already adopted public sector reform program. 3.101 Containing energy subsidies while the government implements investments and reforms to bridge the gap in power supply and to remove bottlenecks in electricity transmission and distribution i s essential along with firm actions to maintain the wage bill under control. Both are key to create the fiscal space to fund priority expenditures to promote growth and poverty reduction. With regard to the latter, going forward, efforts should be made to increase further poverty-related expenditures. In this regard, a study should be conducted to deepen knowledge about funding gaps faced by regions (e.g. northern region) with higher poverty incidence which should also review the adequacy o f the sectoral composition o f pro-poor expenditures. Moreover, analysis o f regional distribution o f public spending and its efficiency at sector level would contribute to identify actions to improve the impact o fpublic expenditures. 3.102 Continued efforts remain necessary to improve the monitoring o f expenditures, including by external actors, such as civil society. To improve comprehensiveness o f CAGD reports and increase comparability with the budget, the key challenge i s to include externally financed project expenditures and internally generated funds by MDA. Attention should also be paid to improving data accuracy through careful data reconciliation before both monthly budget execution reports and the Annual Financial Statements are finalized. In addition, it is important to ensure routine timely public disclosure o f monthly CAGD reports on MoFEP's website and/or 52See discussion inparagraphs 3.8-3.15 above. 58 in the Gazette so that more systematic information on budget execution is available to the general public.53 3.103 At the same time, MoFEP may wish to consider improving the timeliness and dissemination o f its Citizen's Guide to the Budget Statement to broaden the accessibility to budgetary information and thereby improve the quality o f public participation in the budget process. Road shows could incorporatepublic meetings to explain not just the upcoming budget process but also the 2007 budgetparameters. Table 3.7: ProposedKey Measuresand Sequencing PFMChallengesidentifiedbythe Recommendation Sequencing ERPFM Quick Medium win Term Need to better control the wage billand Implement corrective measures to follow up on address weaknesses inpayroll findings from census o fpublic servants and management and administration IPPD2 audit, establish back up system and X finallze migration o fpersonnel information o f subvented agencies onto IPPD2 Include external financed project expenditures Improve the comprehensiveness, quality and IGFsby MDA inCAGD reports and and timeliness o f in-year and end-year improve data accuracy strengthening by X reporting on the implementation o f the reconciling data before report finalization budget. Ensure timely public disclosure o f monthly CAGD reports onMoFEP website or Gazette. X Weaknesses inthe budget execution Address factors contributing to variations and process delays inthe process from commitments to X actual expenditures Improve budget execution o f donor commitments, particularly project funding X Need for strengthened processes to plan, Implement recommendations from audit o f develop and manage IFMIS BPEMS I l x Continue revenue mobilization efforts Implement measures to meet ambitious revenue targets 1 l x Address the issue o f significant budget Ensure consistent reporting o n the use o f deviations contingency by M D N l i n e itembetween X appropriated and executedbudgets, particularly o fpersonal emoluments, and bring forward public sector wage negotiations Adopt short and medium-term measures to deepen MTEFprocess X Strengthenthe pro-poor focus and impact Increase further poverty-related expenditures, o f public spending including by targeting regions with higher X poverty incidence Deepen knowledge about funding gaps faced by x regions with highincidence o f poverty and efficiency o fpublic spending at sector X 53 Good practice (PEFA) establishes at one month the timeline between in-year fiscal report completion and iisclosure. j4Buildon PETS and other studies. 59 PFMChallengesidentifiedbythe Recommendation Sequ ERP3?M Quick Medium win Term Continue strengthening o f capacities for External audit: identify potential cost savings to external and internal audit enable GAS' limited resources to be deployed X more effectively Internal audit: continue to strengtheninternal audit practices and buildcapacities inboth IAA and across IAUs X Need to ensure sustainable development Contain energy subsidies while government o f the energy sector implements investments and reforms to bridge the gap inpower supply and to remove X bottlenecks inelectricity transmission and distribution Need to ensure value-for-money for all EstablishPFAU, ensure robust procedures and public investment resources strengthen institutionalcapacities for planning, X prioritizing and managing public investment resources 3.104 To strengthen budget execution it i s necessary to investigate in detail the specific factors contributing to breaks or variations inthe budget execution process from commitments to actual expenditures. The results from this analysis should help identify time-bound corrective measures. In addition, improving budget execution o f donor commitments, particularly o f project funding, i s also required to support the country's goal to further accelerate growth and poverty reduction. 3.105 Reducing the deviations between budgeted and actual expenditures i s critical to improve budget credibility. Inthe short term, the Government could identify a set o f measures (covering the short, medium and long-term) to deepen the MTEF process and improve the link between policy priorities and planned and actual expenditures. The recently commissioned analytical work on MTEF could inform this process. Moreover, it would be important to ensure consistent reporting on the use o f contingency by MDNline item in budget execution reports to facilitate comparisons between appropriated and executed MDA budgets. Finally, the review notes and supports the Government plans to bring forward public sector wage negotiations to ensure these are approvedbefore the Annual Budget i s finalized. Medium-and longer -term actions 3.106 The analyses set out inthis report also imply longer-term actions. RegardingBPEMS, it would be important to implement the audit recommendations, particularly to upgrade the hardware first (as identified in the audit) before introducing the Public Sector Budgeting (PSB) module. Examining lessons from international experience o f IFMIS systems may be relevant. In particular, given the comprehensiveness o f the new system and the degree o f migration required from multiple existing systems, implementation o f the new system will benefit from careful management (including a detailed change management strategy) to avoid disrupting the core budgeting and accounting processes. 3.107 The GoG fiscal strategy based upon rapid domestic revenue resource mobilization growth calls for measures to meet the revenue targets. This will require strengthening tax enforcement and the recovery o f tax arrears, widening the tax base (e.g. flat VAT rate scheme and IRS tax 60 stamp to cover the informal sector) and improving the efficiency o ftax administration, including further computerization o f the tax system. Such actions call for co-ordinated efforts by the Revenue Agencies, the RAGB, and the Tax PolicyUnit inMoFEP. 3.108 On external scrutiny, it would be useful to prioritize scarce audit resources and identify potential cost savings to enable the Auditor's General's limited resources to be used more effectively. Greater efficiency ininternal and external audit operations could result, for example, from measures to enable analyses by the IAUs to feed into reviews carried out by GAS. This would reduce potential duplication of effort and free up resources to apply to targeted performance reviews based on analyses o f risk factors. It i s clear that realizing these gains will require greater collaboration between the IAA and GAS. In addition, continued support to IAA to consolidate and deepen progress recently made in strengthening internal audit will be important, particularly with respect to buildingcapacities inIAUs. 3.109 Ghana i s likely to require continued high levels o f public investment in order to sustain economic growth with substantial infrastructure investment requirements particularly in the energy and transport sectors. With the potential scaling-up o f public investment, it will be important to ensure that all investments are planned and managed appropriately in order to ensure value-for-money. The setting up o f the PFAU (particularly linked to access to international capital markets) at the centre with greater analytical capacity i s a useful initiative - in future, the capacity built up could be used to boost MDA capacities for analyzing their investments. Looking further ahead, as resources for domestic investment become more significant and donor resources less dominant, it will be important to ensure that domestic institutional capacities for investment in terms o f the project cycle and the overall prioritization o f investment funds are strong. 3.110 At present, limited capacities to oversee and implement large projects and weaknesses in costing investment projects represent potential constraints to significantly higher levels o f capital spending in the near term. At the same time, increases in investment expenditures will require higher levels o f recurrent spending, both in terms o f the maintenance o f new infrastructure, but also to ensure that sufficient levels o f accompanying labor, materials and supplies are provided for the operation o f services using the infrastructure (e.g. schools). To the extent that PPP approaches provide a contract for an agreed level o f services, these direct costs would be transferred to the private sector. However, international experience o f PPP initiatives indicates that in order to achieve savings on operating costs, it i s essential that a strong regulatory framework i s in place and that the contract ensures an appropriate transfer o f risk to the private sector operator. 3.111 Finally, it i s worth noting that, in line with other countries' experiences o f scaling up investment, capacity constraints, including staff capacities for carrying out technical and financial appraisal, and contractor absorption capacities, if not properly addressed, are likely to hamper a rapid increase in investment expenditures. Thus, it would be worth the GoG's reconsidering the extent o f the planned scale-up over the medium-term and ensuring rigorous selection and prioritization o fproposedprojects. 61 4. PUBLIC PROCUREMENT BACKGROUND 4.1 In 2003, the OEDCDAC and the World Bank established the Roundtable on Strengthening Procurement Capacities in Developing Countries with the aim to create better tools and techniques to strengthen procurement in developing countries. In 2005, the Joint Venture for Procurement was set up with a mandate to fulfill the Paris Declaration on Aid Effectiveness and its commitments to: strengthen nationalprocurement systems; support capacity development; and use local country systems. The "Methodology for Assessment o f National Procurement Systemsyywas developed as a tool to assess procurement system^.'^ 4.2 Ghana has been actively involved in the Roundtable and has developed a methodology for assessment o f compliance and performance o f procurement entities, referred to as the Public Procurement Model o f Excellence (PPME). The tool was piloted in 2005 and a large scale assessment o fmore than 200 entities was carried out in2006. 4.3 For 2007, the expenditures for public procurement in Ghana are estimated at over 17 percent o f GDP and around 80 percent o f tax revenue.56 Due to the important role public procurement plays, there i s a strong link between the efficiency o f the national procurement system, its impact on Public Financial Management as a whole and the achievement o f development goals stated inthe GPRS 11. 4.4 The goal o f this assessment i s to support the Government's reforms to increase the value for money (VFM) and to establish a baseline against which future progress in the quality and performance o f the country's public procurement system can be measured. It follows the 2006 ERFPM finding to be critical to continue strengthening public procurement through implementationo f the Public Procurement Board's reform strategy. 4.5 This chapter first summarizes developments since the CPAR 2003. Then, presents an overview o f the: (i) independent review o f the Government's self-assessment o f the performance o f its procurement entities; and (ii)joint assessment o f the formal and functional features o f the national procurement system. The following sections analyze the main strengths and challenges o f Ghana's public procurement system, the Government's procurement reform program, the degree to which there is correspondence between the identified main challenges and the Ghana's ongoing reforms. Finally, it presents priority recommendations to further strengthen the procurement system, reviews institutional issues and sums up key conclusions and next steps. The comprehensive and detailed Public Procurement Assessment Report is attached as Volume I1o fthe 2007 ERPFM. 55 www.oecd.orddacleffectiveness,Methodology for Assessment ofNationalProcurement Systems (Version 4) 56Volume 11, Chapter 1. 62 DEVELOPMENTS CPAR2003 SINCE 4.6 The Country Procurement Assessment Review (CPAR) undertakenby the Bank in 2003 recommended actions to improve the public procurement system focused on all aspects o f the system including the legal and institutional framework, procurement procedures, proficiency, oversight mechanisms and anti-corruption measures. Overall, substantial progress has been achieved since 2003 instrengtheningpublic procurement Highlightsinclude: (i) enactment o f the Public Procurement Law (Act 663 given assent on December 31, 2003); (ii) establishment o f the Public Procurement Authority (PPA); (iii) development o f standard bidding documents and request for proposals; (iv) establishment o f an appeals and complaints panel; (v) the development of a software package for procurement planning; (vi) the development o f core short-term training modules for public officials, the private sector and national oversight bodies; and (vii) development o f the PPME tool to collect and assess data on compliance and performance. A detailed account o f implementation o f actions recommended by the CPAR i s presented in Chapter 2 o f Volume 11. 4.7 A number o fother areas identified inthe CPAR are being addressedbythe Strategic Plan 2007 - 2009 o f the Public Procurement Board. Among others, these comprise mainstreaming o f the procurement planning and budgeting process, training o f public sector entities and other stakeholders to undertake public procurement in accordance with the provisions o f Act 663 and establishing a career path for procurement inthe public sector. INDEPENDENTREVIEW OFTHE GOVERNMENT'S SELF-ASSESSMENT OF PUBLICPROCUREMENT 4.8 The Government's objective in conducting the 2006 self-assessment o f public procurement was to obtain a countrywide view interms o f performance and compliance with the provisions o f the Public Procurement Act (Act 663). The entities covered by the assessment were selected to achieve a nationwide overview andto cover six main categories o f spenders including state-owned enterprises, central Government institutions, and local Government entities. 4.9 To conduct the self-assessment, the Public Procurement Model o f Excellence (PPME) tool was used. For each entity, an individual assessment report was prepared. On this basis, three consolidated reports are generated to reflect the status o f the procurement system at the national level: (i)the Performance Assessment System (PAS) Report groups the results o f a number of qualitative Key Performance Criteria (KPC) into the areas o f Management Systems, Information & Communication, Procurement Process and Contract Management; (ii)the Performance Measurement Indicator (PMI) Report presents quantitative data (percentages or number o f days) for 16 performance indicators; and (iii) the Baseline Indicator System (BIS) Report is only produced at the national level by technically linking the KPC's o f the PAS with the OECD Baseline Indicators. The findings o f the government self-assessment are reported in the Nationwide Procurement Assessment Report 2006 issuedinMarch 2007. 4.10 The development and implementation o f the PPME tool is a remarkable achievement and highlightsthe government's commitment to monitor the implementation o f its procurement law. Additionally, it contributed to dissemination o f the new legislation and to raise management's awareness o f the operational challenges involved. 63 4.11 The country's self-assessment was reviewed by the ERPFM team to validate the usefulness of the PPME tool to monitor public procurement practices at the entity level. The key findings o fthe review are the following: The findings o f the PAS Report 2006 are credible given the information received from other sources such as interviews with procurement entities, and the private sector and considering the publicly accessible website o f the PPA. To further strengthen the PAS qualitative assessments, the PPA has already identified the need to refine some Key Performance Criteria (KPC's) which proved to be difficult to apply in the self-assessment and at the same time considered not to be relevant. With a view to better align PAS results and the OECDDAC Baseline system to deliver a unique range of qualitative compliance and performance data, the average rating o f each KPC could be disclosed and linkage to the OECDDAC Baseline indicators improved particularly with regardto the Compliance andPerformance Indicators (CPI). 0 To ensure a reliable and representative database for quantitative assessments, the Performance Measurement Indicator (PMI) Report would benefit from considering the following actions: (i) improve sampling o f contracts which should cover goods, works and services (ii) some formulae to be consistent with their stated objective; and adjust (iii)strengthen key role o f quality control. Due to these shortcomings, the validity o f the findings o f the PMI report and consequently the possibility to extrapolate its findings on performance is limited. 0 To further improve the robustness o f the PAS and PMI reports, it would be important to add to the entity selection criteria another dimension to ensure that the sample i s representative with regard to the annual value o fprocurement operations. 0 After review o f the BIS report, the joint assessment concluded that the operational relevance o f this report could not be clearly identified and therefore the PPA has decided to discontinue this PPME reporting module. 4.12 Overall, the PPME tool offers a good platform for tracking compliance and performance o f public procurement systems. Once strengthened along the lines described above, the tool's robustness and reliability would be improved and the PMI report would be very useful to obtain nationwide quantitative results. PPA plans to use a refined PPME tool and methodology in rolling out the assessment later in 2007. The detailed independent evaluation o f the Government's self-assessment i s presented inChapter 3 o f the attached Volume 11. JOINT ASSESSMENT PUBLICPROCUREMENTUSINGTHE OF OEDCDACBASELINEINDICATORS 4.13 The joint assessment using the OECDDAC "Methodology for Assessment o f National Procurement Systems" has been undertaken to evaluate the quality o f the functional and formal features o f the current system with a view to establishing a baseline against which future progress can be measured. While the Government o f Ghana was mainly represented by the Public Procurement Authority (PPA), MoFEP, Ghana Audit Service and the Internal Audit Agency were also involved when assessing the linkages between public procurement and public financial management, external and internal audit mechanisms. Consultations took place with 64 procurement entities, private and professional sector representatives and civil society organizations for triangulation o f data and information. 4.14 The OECDDAC methodology targets four pillars (Pillar I Legislative and Regulatory - Framework, Pillar I1 - Institutional Framework and Management Capacity, Pillar I11 - Procurement Operations and Market Practices, Pillar IV- Integrity and Transparency o f the Public Procurement System) organized around 12 indicators and 54 sub-indicators. The sub- indicators were scored usinga 0 to 3 scale inwhich:(i) score 3 indicates full compliance with the stated standard; (ii)score 2 indicates that the system exhibits less than full achievement and needs some improvements inthe areabeing assessed; (iii) 1indicates that substantivework score is needed to meet the standard; and (iv) score 0 indicates failure to comply with the proposed standard. 4.15 Whilst the majority o f the scores were agreed by the joint team, there were some dimensions where agreement was not reached. These have been noted, in Chapter 4 o f the Public Procurement Assessment Report, attached as Volume 11, which provides the detailed assessment o f each o fthe 54 sub-indicators coveredbythe OECDDAC Baseline Indicators. Figure4.1: Ghana's PublicProcurementSystem Score Aggregatedby Pillar - LmislativeFramework Integrity& Transparei Capacity --CMaximumscore Operations and Markets 4.16 Overall, the joint assessment concluded that the quality o f the Ghanaian public procurement system i s above a~erage.'~As illustrated by Figure 4.1 (above) the strongest component o f the country's procurement system i s the robust legislative and regulatory framework (Pillar I) which is well within the norms with an average score o f 2.3. All other Pillars reach an average score o f 1.8. ~~ 57Taking average as 1.5, the mid-pointof the OECDDAC scale. 65 4.17 The above "big picture" conclusions are based on a detailed joint assessment o f the OECDDAC set o f sub-indicators, summarized in Table 4 o f the executive summary (Summary o f the Baseline Scores - Ghana's Public Procurement System), with scores aggregated to the indicator and pillar level by applying simple average calculation. At the sub-indicator level, the assessment shows that about 30 percent o f the 54 scores hlly achieve (score 3) the OECDDAC standards and another 41 percent less than hlly achieve (score 2) those standards. Additionally, about seven percent o f the sub-indicators (four intotal) fail to meet the standard (score 0). 4.18 As illustrated by Figure 4.2 below, at the indicator level challenges to meet the OECDDAC standards remain in the areas o f further linking procurement with public financial management, enhancing the institutional development capacity, improving the efficiency of procurement operations and operational practices, addressing procurement-related issues in control and audit systems and making operational the appeals mechanisms. STRENGTHSAND CHALLENGESOF GHANA'S PUBLIC PROCUREMENTSYSTEM 4.19 The various strengths and outstanding challenges o f the public procurement system in Ghana are highlighted in this section. First, it focuses on the Government's self-assessment, while the four following sections focus on each o f the four pillars o f the joint assessment. Figure4.2: Ghana'spublic procurementsystem, score aggregatedby indicator 3.0 2.5 2.0 1.5 1.o 0.5 0.0 The Government'sSelf-Assessment 4.20 With the development and implementation o f the PPME tool, Ghana has established a good platform to track compliance and measure perfonnance o f the country's public procurement system. Also, the PPME has a high potential to deliver robust and well-aligned compliance and performance data for the OECDDAC Baseline indicator system. Inthis respect, Ghana i s well ahead o f other developing countries and its experiences and lessons learned will prove valuable to them. 66 4.21 There are a number o f outstanding challenges that the authorities may want to consider addressing to ensure that PPME attains its potential. They are mentioned inparas. 4.11 and 4.12 above, and include the need to increase the reliability, validity and general relevance o f the tool. Specific recommendations are elaborated inparas. 4.50 to 4.67, below, under "Prioritization and Sequencing o fProcurement Reform Program". Legislative and Regulatory Framework 4.22 The establishment o f a solid legal framework for public procurement i s clearly one o f the main strengths o f the procurement system in Ghana. Act 663 should be welcomed as a notable achievement and represents a solid foundation on which to build. Moreover, once the Regulations currently in draft are formalized, Ghana will further complete its legal and regulatory framework which includes the Standard Tender Documents and Manual that are already in place. At the same time, the PPA has identified areas o f improvement o f the current Act which will possibly be amended in the near future. While dissemination efforts should continue, the law and supplementing documents have been posted at the PPA website and a public forum focusing on "Public Procurement and Good Governance" was carried out inAugust 2006. Institutiona1Framework and Management Capacity 4.23 It is a notable achievement that Ghana scored a maximum o f 3 for the indicator covering institutional set-up o f PPA. Clearly the PPA rests on a solid legal framework with core funding from Parliament secured through the Act. Another notable success is the fact that the PPA in close collaboration with local training institutions (notably GIMPA) i s at the brink o f rolling out a nation wide short-term training program on procurement which i s based on a comprehensive training needs assessment that was carried out in 2006. Moreover, PPA's commitment to improving management o fprocurement has been further demonstrated by the current initiative to put in place a web-based electronic interface for entry and submission o f procurement plans at the entity level. 4.24 However, a number o f challenges remain. These include the need for mainstreaming procurement planning into the national budget process. Inparticular, procurement plans need to be submittedby all procurement entities as part o fbudget preparation andthey need to be revised to meet the forward budget estimates before expenses are committed. Another challenge concerns collection and analysis o f national aggregated statistics which is likely to be facilitated by the development o f the web-based procurement planning system. The launching o f the Procurement Bulletin on August 22, 2007 is an encouraging development that needs to be consolidated through regular publication to provide comprehensive information on business opportunities and contract awards. 4.25 The PPA may also needto continue encouraging domestic training providers to follow in the steps o f GIMPA with a view to provide a more diversified supply o f both long and medium term procurement-related training programs. In this regard, GIMPA i s already using PPA's training module in their courses. Given that the above mentioned training needs assessment revealed a lack o f procurement competence at all levels (management, staff, review and control bodies), it is critical that along with training initiatives, efforts should be made to further 67 professionalize procurement staff. The PPA will need to monitor that procurement entities do apply quality control standards (as outlined in the procurement manual) when conducting staff appraisals. Procurement Operationsand Market Practices 4.26 Ghana has made good progress defining the skills and knowledge profiles for specialized procurement jobs by proposing the establishment o f a Career Path system for procurement professionals in the public sector and in establishing a national body for accreditation o f procurement professionals. 4.27 The main challenge for the public procurement system lies in improving overall implementation and strengthening operations so that the country achieves the value for money that should follow from its robust legal and regulatory framework. There i s a lack o f understanding o f the procurement law among all level o f staff in the M D A s and MMDAs. This was confirmed by most o f the procurement entities interviewed during the assessment. Moreover, the Ghana Audit Service, in the context o f its regular financial audits, has detected examples o f procurement thresholds not being respected by the procurement entities. This adds further to the impression that awareness o f the applicable legislation and associated implementing instruments i s insufficient at the level o f the procurement entities. 4.28 It is however encouraging that GAS reports state that the number o f violations is decreasing. Moreover, PPA has developed a comprehensive training program soon to be implemented which with the previously released procurement manual and standard tender documents create necessary (although not sufficient) conditions for strengthening procurement operations. The challenge i s now to effectively implement the training program and ensure that issues singled out as particular weaknesses such as contract management and record keeping are effectively addressed. Moreover, stakeholders have pointed out that it will be necessary to ensure continuous quality assurance o f the training program to make certain that it has the desired impact . 4.29 To further strengthen procurement competence, the establishment o f a career path for procurement professionals, as suggested inthe report - "Establishment o f Career Path and Career Development o fProcurement Professionals and Practitioners inthe Public/Civil Service" - would create a platform for a systematic matching o f skills against requirements for competitive recruitment. The PPA should be praised for having commissioned the report which is comprehensive and has specific proposals on a career structure for procurement professionals, with detailed skills and competencies profiles, requirements for advancement/promotion, and includes a draft 'scheme o f service'. The report was approved on June 20th, 2007 by the Office o f the Head o f the Civil Service with recommendation for immediate implementation. It will now be important for PPA to work closely with the relevant authorities so that the provisions o f the report are implemented and used as a basis for future creation o f positions, development o fjob descriptions, recruitment, training and staff appraisal. The rapid implementation o f a career structure will provide a clear incentive for procurement professionals nationwide to engage themselves fully inthe forthcoming training programs. 68 4.30 The PPA has also made significant headway in establishing a national body for accreditation o f procurement professionals. A planning committee has been established, which has issued two separate reports: the final report for the constitution o f the Ghana Institution o f Procurement and Supply Chain Management (GIPSCM), and a corresponding code o f ethics for the GIPSCM. The code i s being considered by the PPA's board while the Institute i s expected to be inaugurated byDecember 2008. 4.3 1 With respect to the capacity o f the private sector to participate inthe procurementmarket, inspite of Ghana displaying anincreasingly vibrant private sector, the Micro and Small Medium Enterprises sector has limited international market exposure and a lack o f management capacity. This results ina limitednumber o f contractors who are ina positionto compete for large-volume contracts. Private sector representatives consulted during the assessment reported that many bidders are not professional in their approach to preparing tenders. The tender documentation i s reportedly studied superficially or examined too close to the submission deadline to allow them to prepare bids o f the required quality. It is positive that PPA has held meetings involving private sector representatives and dedicated awareness workshops have been offered to a number of private sector organizations. 4.32 PPA faces an important task in continuing to reach out to the private sector to upgrade their skills and ability to bid for contract opportunities. The PPA and the Government in collaboration with private sector representatives may also consider ways to address the systemic constraints (eg. lack o f access to credits) inhibiting access o f particularly MSMEs to participate inthe procurementmarket. The PPA's training programhastargeted the private sector. 4.33 Finally, to provide for a more efficient procurement process, especially at the MMDA level, it will be important to consider how the current architecture o f Entity Tender Committees and Tender Review Boards can be simplified. The PPA has already been considering ways to reduce the number o f levels o f Tender Review Boards and plans to deal with this issue in the proposed amendments o f Act 663. At the same time consultations have indicated that the work load o f the Tender Review Boards i s excessive and that incentives for participating inthe Boards may need to be reconsidered to make it more attractive. Integrity and Transparency of the Public Procurement System 4.34 Arrangements for external and internal audits are well defined in the respective Acts for the Ghana Audit Service and Internal Audit Agency. However, except for donor fimded activities, specialized procurement audits have largely not yet been carried out). In practical terms, the procurement audit framework is still at an early stage o f development. Only 25 percent of MDAs and MMDAs have established internal audit units and internal audit standards focus mostly on compliance but not on procurement performance audits. Currently, about 25 percent o f the entities have established Audit Reports Implementation Committees which are entrusted with assisting management to enforce and follow-up o f audit findings. The procurement competence among auditors i s generally low and planned support to the Ghana Audit Service (and Oversight Bodies) to strengthen their capacity should be implemented as a matter o f priority. Consultations with private sector representatives have hrther indicated that institutionalization of professional procurement audits is expected to play animportant role indetecting and preventingcorruption. 69 Building the capacity and institutionalizing the role o f internal and external audit, including the scrutiny o f compliance with procurement rules andregulations. Benchmarking, Monitoring andEvaluation o f 100key entities. 0 Harmonizing Law with BPEMS Purchase and Accounts Payable Systems. Completion o f skills andtraining needs assessment. 4.41 With respect to the above actions, plans havebeen developed to increase the procurement expertise in both the internal and external procurement audit entities. PPA has made good progress in rolling out the PPME tool and has completed the training needs assessment. The Procurement Bulletin has been officially launched on August 22, 2007. No evidence has been obtained to document whether progress has beenmade interms o f harmonizing the procurement legislationwith the BPEMS systems. The2007-2009 PPA StrategicPlan 4.42 This is the most recent version o f PPA's strategic plan, andthe main goals and associated activities are summarized as follows: 0 Policies, Standards and Rules. This area includes a broad range o f actions such as the consolidation o f the PPA secretariat and the establishment o f the Appeals and Complaints Panel. These activities are supplemented by proposed reviews and updates o f operational manuals and Act 663. Mainstreaming. The overriding priority for this area is to ensure that procurement is increasingly aligned with budget preparation and management as well as payment and audit processes. Monitoring and evaluation. The PPA proposes to continue using the PPME tool to ensure full implementation o f Act 663. Other M&E-related activities include plans to establish procedures for monitoring procurement processes, and the establishment o fjoint working practices for procurement audits with relevant audit institutions. Capacity Development. Under this goal, the PPA proposes to develop core training modules with a view to train staff o f procurement entities (among others) throughout Ghana in the short term (100 percent coverage by 2008). The PPA also has plans to strengthen local educational institutions to ensure that they offer training modules o f relevance to the public sector. Finally, it i s proposed to develop a career path for procurement professionals and practitioners inthe Public/Civil Service. Promote Local Business. The PPA proposes to assist local businesses and firms to be more competitive in the provision o f goods, works and services in an efficient and cost effective manner. 0 Information Systems and Database Development. Several activities are proposed under this heading including the need to develop and roll-out (including. training) the web-based procurement planningsoftware, continuous update o f the website, stakeholder consultations and publication o f PPA activities to increase the public's awareness o f PPA and its role. 71 4.43 The strategic plan i s also presented in a planning matrix with outputs, activities and deadlines. It i s assumed throughout that the PPA i s responsible for implementation. No detailed allocation o f responsibility to departmentdentitieswithin PPA i s indicated. 4.44 A budget with costing at the goal level has been prepared on a year by year basis. No budget figures are presented at the activity level. The total cost o f the plan for the three-year period i s estimated at Cedis 70 billion (about US$7.7 m). The PPA notes in this respect that 'inadequate and irregular' funding has in the past hampered project implementation. Clearly external donor funding i s an implied prerequisite for implementation and is expected to cover half o f the budget. The United Kingdom's Department for International development (DFID), which has supported public procurement reform in Ghana since 2004, has agreed to provide about US$ 1.8 m in support o f PPA's strategic plan for the period Jan 2007-Dec 2008. The support will among other things, focus on strengthening the PPA secretariat and its monitoring & evaluation capacity. Inaddition, an agreement has been signed in mid September 2007 to fund US$2.3m under a compact signed with the Millennium Challenge Corporation. The five-year compact has a specific provision for funding for ''development o f procurement professionals". Overall, a remaining gap o f 2.5 million has yet to be h d e d to cover actions such as short term training (US$1.7 million), PPME roll out to 600 entities including data base management (US$0.5 million) and other activities such as, the processes for the amendment o f the public procurement Law (Act 663) and the regulations, mainstreaming public procurement into financial management and assisting local businesses to be more competitive (US0.3 million). 4.45 Overall, the plan i s comprehensive and clearly ambitious. PPA has therefore made explicit its priorities in implementing these activities. According to the strategic plan, the following should be implemented inorder o fpriority: (i) institutional strengthening; (ii) approval o f revised schedules and sections o f Act 663; (iii) implementation o f regulations and manuals; (iv) communication and publicity; (v) capacity development; and (vi) monitoring and evaluation including continued assessments using the PPME tool, Inthe view o f the ERPFM team, the most critical component inthe planto achieve value for money inpublic procurement i s capacity development. HOW WELL ALIGNEDI S THE GOVERNMENT'S REFORM PROGRAM 4.46 The public procurement assessment identified a number o f challenges as detailed in section 3.2. Table 4.1 below shows the extent to which the Government's reform program, as outlined above, addresses the challenges ina comprehensive and effective way. 4.47 One major area that is not addressed in the current GoG procurement reform planning documents i s the need to refine the approach and methodology o f the PPME tool. A recommendationto address this challenge i s proposedinthe next section. 4.48 Another issue not explicitly addressed inthe Government's reformprogram i s the need to streamline the current institutional set-up by providing for a more effective operational systemo f tender review boards. Under the current system, procurement may be delayed when tender review boards are unable to assemble as per requirements and demand. PPA has rightly decided to prepare amendmentsto Act 663 to address this issue. 72 Table 4.1:Main Challengesand the Government'sProcurementReformProgram Challengeidentifiedby Government's lanned Reference Status of implementation the PublicProcurement responsef.4 Assessment Supplementing Legal Review Act 663 Goal 1 Policies, - Amendment under preparation. PPA Framework Standards, and Rules plans to have the amendments approved by December 2007 Implementationof regulations List o fprioritized Regulations to be tabled before and manuals actions Parliament Capacity development Mainstreaming Synchronize procurement Goal 2 - Training on web based procurement Procurement activities into budget, payment Mainstreaming planning tool has started. PPA and audit processes plans to make the tool fully operational by January 2008 Increasing Strengthen local (training) Goal 4 - Capacity GIMPA is already usingPPA's Institutional institutions Development training module intheir courses Development Capacity Facilitateaccreditation Goal 4 Capacity - National body for accreditation Development established. trengthening Short-term training program Goal 4 - Capacity Programhas started inAugust 2007. Procurement Development PPA secures fundinguntil2009 at Operations and which time procuring entities are Contract expected to have budgetary Administration provisions for funding their participants. Facilitate establishment o f Goal 4 - Capacity Proposal approved bythe Office o f procurement as career Development the Head o f Civil Service on June 20,2007 Review organizational set-up Goal 1-Policies, Amendment under preparation o f Tender Review Boards BuildingCapacity Equip local business o f Public development with knowledge Business term trainingprogram Procurement Market and skills Development Strengthening Establish an Appeal and Goal 1 Policies, - Panel established internal and external Complaints Panel Standards and Rules scrutiny o f procurement Joint working arrangements Goal 3 - Monitoring N o information decisions for audit and Evaluation Securing full access to Goal 6 Information - Inprocess, butwebsite isnot yet Information: management and complete interms o f information on Update website Publication o f activities dissemination contract opportunities and awards and procurement plans Stakeholder consultations Publication o f procurement List ofprioritized Procurement Bulletin was launched bulletin actions on August 22, 2007. Regular publication to be monitored 58PPA Draft Strategic Plan 2007 - 2009. 73 4.49 With respect to the Appeals and Complaints Panel, the Government's current focus is on the strengthening o f the newly established Panel, but more ambitious goals with respect to the output o f the panel seem also to bejustifiable given the fact that a number o f cases are yet to be dealt with and/or communicated to the public. PRIORITIZATIONAND SEQUENCINGOF PROCUREMENT REFORMPROGRAM 4.50 The joint assessment has brought to the fore information that can usefully help update and prioritize the Procurement Reform Program to facilitate achievement o f critical milestones. As discussed above, there is wide agreement with the Government's procurement action planand the list o fkey measures proposed by this Review should largely be seen as an endorsement o f the PPA Strategic Plan 2007-2009. Overall a distinction is made between short-term actions to be completed within 12 months (also referred to as quick wins) and those that will be carried out in the mediumterm (up to 3 years). 4.5 1 The proposed key measures are elaborated further below and in selected areas could help refine the Government's action plan. Table 4.2 lists these measures and a more detailed description is also available inVolume 11, Chapter 6. Quick wins 4.52 InTable 4.2 below, eight out of 12 recommendations are identified as quick wins. Quick wins are generally defined as actions that with limited use o f resources can bring about notable changes and improvements within a year. Moreover, these are actions at an advanced stage o f implementation. Table 4.2: Proposed Key Measures and Sequencing d Challengesidentifiedbythe Public Recommendation Sequencing ProcurementAssessment Quick Medium win Term Supplementing LegalFramework Seek approval of the proposed amendments o f Act 663 and formalize the regulations Improving Assessment Framework Reconsider strategy, preparation and conduct o f future self-assessments(increasing focus on risk factors, and quality assurance) and X refine PPME tool prior to rolling out assessmentlater in2007 Capacity development for public procurement Mainstreaming Procurement Make operational web-based procurement planning tool inJanuary 2008. IncreasingInstitutional Buildup sustainable procurement training Development Capacity programs within local training institutions X Establishnational standard certification system 74 ChallengesidentifiedbythePublic Recommendation Sequenciw ProcurementAssessment Quick Medium 0 Strengthening Procurement Execute the short term training program Operations and Contract launched inAugust 2007. I x Administration Implement recently approved career path for procurement professionals Establish efficient mechanisms to delegate authority for procurement decisions (amendment o f Act 663) Building Capacity o f Public Strengthenprivate sector capacity to Procurement Market successfully compete for government contracts Strengthening internal and external Consolidate the Appeals and Complaints scrutiny o f procurement decisions Panel, strengthen its independence and publicize the number o f existing complaints that have been addressed Strengthenprocurement expertise among audit institutions l x Publishregularly the Procurement Bulletin and supplement the PPA website with information o n contract opportunities, contract awards andprocurement plans 4.53 Seek approval o f the proposed amendments o f Act 663 and formalize the regulations. To augment the provisions o f the law, it i s important to formally approve the regulations and issue them. The Government may also want to consider buildingon the current assessment to update the overall legal framework, particularly as it considers amending Act 663. The particular provisions that would benefit from being addressed are identified in Volume 11. These amendments are expected to be approved by December 2007. 4.54 Reconsider strategy, preparation and conduct o f future self-assessments and refine the PPME tool. To ensure value for money and strengthen the focus on risk mitigation when rolling out the PPME tool, build on findings o f the present report (section 3.2), to improve future assessments inthe following areas: 0 Representativeness o f sampling at the entity level. Appropriateness o f qualification o f assessors (including procurement); 0 Comprehensiveness o f instructions for assessors. 0 Planning sufficient time for assessments considering the size o f the procurement entity to be assessed. 0 Quality control. 75 0 Sequencing further PPME roll out with capacity buildinginitiatives and prioritization o f key procurement entities (based on annual volume o f contracts). 4.55 With regardto the PPMEtool, the indicators, formulae, and reportingmay also be further improved by considering the following proposed actions: 0 Refine some Key Performance Criteria (KPCs) (particularly the ones that were scored N.A.often). 0 Publish the average rating o f each KPC and link them to the respective OECD/DAC Baseline Indicators for qualitative performance and compliance measurement. Correct/align some formulae for improved accuracy in generating Performance Measurement Indicators (PMI). 0 Reconsider usefulness o f PPMEBaseline-Indicator System (BIS) report. 4.56 PPA plans to use a refined PPME tool inrolling out the assessment later in 2007. The new strategy will include updated guidelines with special attention on big spenders and high volume contracts and completeness o f spectrum to cover Works, Goods and Consultants contracts. CapacityDevelopment 4.57 Make operational the web-based procurement planning tool. The PPA i s encouraged to make operational the recently developed web-based procurement planningsystem to improve the quality o f procurement plans and to generate aggregate national procurement statistics. Training on the use o f the procurement planning tool has already started and it is expected that the tool will be operational by January 2008 to allow monitoring o f quality assurance o f the plans and of their quarterly requiredup-dating. 4.58 Establish national standard certification system. It will be imperative for PPA to ensure that the documents prepared for the establishment o f the Ghana Institution o f Procurement and Supply Chain Management are fully adapted to the needs and requirements o f both the private and public sectors in Ghana. Once this has been ensured, the PPA should put its full weight behind the formalization o f the Institution, its Charter and Code. This process should be closely coordinated with the current drive to institutionalize and develop high-quality medium and long- term training programs. There should be a clear linkage between degrees and certificates from such programs and subsequent accreditation from the authorized body. The final report to establish the Ghana Institute o f Procurement and Supply Chain Management i s ready and being considered by the PPA, which plans to inaugurate the institute by December 2008. 4.59 Execute the Short Term Training Program. The training program launched in August 2007 represents a "window o f opportunity" to strengthen compliance with the legal framework. Iffundingposesconstraints, it is suggestedthat the PPA deals with the organizational aspects of the workshops while the funding o f participants (transpodper idem etc.) i s covered, totally or partially, by the training budget o f the respective procuring entities. For now, PPA plans to secure funding until 2009 at which time, procuring entities are expected to have budgetary provisions for funding their participants. It i s further recommended that the program is closely 76 monitored and updated to put emphasis to the extent possible on critical areas already identified bythe GoG self assessmentreport. 4.60 Establish efficient mechanisms to delegate authority. The current architecture o f entity tender committees and tender review boards does not allow for expedient processing o f procurement processes. It i s encouraging that the Government is aware and looking into this issue and it is recommended that action i s taken, after careful consideration o f the associated risks, to streamline and simplify the current architecture allowing for more swift and flexible operations o f these structures. PPA has included this recommendation in the proposed amendments o f Act 663, which are expected to be approved by December 2007. Strengthening internal and external scrutiny 4.61 Consolidate the Appeals and Complaints Panel, strengthen its independence and publicize the number o f existing complaints that have been addressed. It i s considered vital for the overall credibility, accountability and transparency o f the procurement system, that the Appeals and Complaints Panel (ACP) implement the rules as soon as possible to start clearing the backlog o f cases submitted for administrative review, follow up on sanctions, and generally act as an advocate for law enforcement. PPA has recognized the importance to ensure full independence and autonomy o f the ACP from the rest o f the system with regard to resolving complaints and plans to revise its composition by December 2007 with a view to make it a completely independent entity. 4.62 Publish regularly the Public Procurement Bulletin and supplement the website with information on contract opportunities, contract awards, and procurement plans. Following its launching on August 22, 2007 the Public Procurement Bulletin should now be published regularly to ensure wide and easily accessible publication o f business opportunities and to comply with Act 663. Also, while it i s commendable that PPA has put in place a very comprehensive website which i s regularly updated, it is proposed that PPA further increases the value and usefulness o f the site by adding up-to-date information on contract opportunities, awards and procurement plans. This will greatly strengthen the transparency and accountability o f the public procurement system and will also allow potential bidders more time to plan ahead andprepare bids. MediumTerm 4.63 Mediumterm actions are expected to be achieved within the planninghorizon o fthe PPA rolling strategic plans (three years). 4.64 Buildup sustainable procurement training programs within local training institutions. Itis strongly recommended that the PPA encourages existing training institutions in the private and public sector to develop high-quality programs inprocurement training. Inthis regard, GIMPA i s already using PPA's training module in their courses. It will be vital to create an incentive structure that will inspire procurement professionals to enroll in professional courses. If participation in training courses is associated with accreditation and increased likelihood for career progression, the incentive to sign up will increase. It will also be necessary for M D A s to allocate sufficient funds for training o f their procurement staff. In turn this will depend on the 77 development o f a broader environment o f accountability for performance, and thus the efficient management o fprocurement as a critical contributor to this. 4.65 Implement career path for procurement professionals. Building on the PPA's commendable achievement o f having prepared proposals on "Establishment o f a Career Path and Career Development o f Procurement Professionals and Practitioners inthe Public/Civil Service", it is important to proceed with implementation following its approval on June 20th2007, by the Office o f the Head o f the Civil Service. The establishment o f a career path i s central to the development o f a procurement cadre and will link career decisions with staff performance appraisal reports. It i s expected to contribute to creating an incentive system for procurement professionals from a monetary and status point o f view. 4.66 Strengthen private sector capacity to successfilly compete for government contracts. Workshops on how to do business with the government in compliance with Act 663 should be offered on a regular basis, ideally as an integrated part o f the short term training program. The private sector is one o f the main targets o f PPA's short term capacity building program. In addition, the PPA could advocate for and assist in offering workshops by Professional Associations. Ifprivate companies realize the chance to gain a competitive advantage by being better trained and informed, they would be expected to enlist incourses even ifoffered on a cost- covering basis. Successful workshops for service providers would create a win-win situation for the private sector, its professional associations and the procurement entities. 4.67 Strengthen procurement expertise among audit institutions. To increase the effectiveness o f control and audit systems, it i s important to strengthen collaboration among the oversight bodies including IAA, GAS and PPA. With respect to the capacity to undertake procurement audits, training is already addressed to some extent under the short-term program, but more efforts are needed to build the necessary body o f knowledge on procurement related issues among the auditors. Besides this, topics for consideration could comprise specific requirements for procurement compliance and performance audits, planning annual procurement audits and follow-up mechanisms. INSTITUTIONALISSUES OR PROCUREMENT REFORM 4.68 The procurement reform process in Ghana is facilitated by domestic political will and support from the executive and it fits well with the international consensus embodied inthe Paris Declaration on aid effectiveness. Nevertheless, effective and sustainable implementation of procurement reform rests to a large degree on the capacity andworking relationships between the various responsible institutions. This section explores some o f these key institutional issues, focusing on MOFEP, the PPA Secretariat, the procurement entities, the administrative review body, the external audit body and training institutions. Relations with the Ministry of Finance 4.69 The members o f the Board o f the PPA are appointedby the President inconsultation with the Council o f State. The Board is requiredto submit an annual report to the Minister responsible for Finance. The strength o f the PPA-MoFEP relationship i s also critical for legal reform as 78 evidenced by the current PPA effort to amendAct 663 which requires the Minister's concurrence before the Attorney General can be requested to initiate the amendment. 4.70 Although the relation is formally with the Minister and not the Ministryper se, the relation with MoFEP is one o f the most important from a strategic point o f view and the PPA underlines this fact by characterizing the MoFEP as the "lead ministry on procurement management issues". It is a welcome development that earlier in 2007, MoFEP defined more clearly the requirements for procurement planning to be considered by the procurement entities and PPA's quality assurance role in this context. The Budget Circular 2008 specifies that procurement plans are to be provided for budget preparation. The process to further mainstream procurement planning into the regular budget preparation and execution process i s a key area where the PPA andthe MoFEP are requiredto work intandem. Strengthening the PPA Secretariat 4.71 The capacity o f the PPA secretariat to spearhead procurement reform is critical to success. The Secretariat is currently in the process o f completing recruitment for the various posts still open. PPA's intention i s to have in place all staff by 2007. The PPA i s broken down into the following directorates and units, according to the PPA organogram (with target staffing levels inparenthesis): 1. Policy and Strategy (3 staff); 2. Legal andPublic Affairs (3 staff); 3. Benchmarking, Monitoringand Evaluation (2 staff); 4. Management Information Systems (5 staff); 5. Capacity Development (3 staff); 6. Finance and Administration (18 staff); and 7. Internal Audit Unit (2 staff). 4.72 According to the March 2007 PPA project proposal submitted to DFID, actual staffing corresponds to roughly two-thirds o f the establishment. The process o f fully staffing the directorates will be critical ifPPA i s to successfully meet the various challenges lying ahead. For example, the Benchmarking, Monitoring, and Evaluation Department will need considerable time to reconsider the strategy, implement the respective measures and refine the PPME tool to fbrther roll out the self-assessments. Additionally, for PPA's own purposes, it will be critical to have the necessary capacity (in-house or contracted) to analyze the data collected through the PPME exercise. Another important area that either the BME or the M I S Departments may want to address i s the need for regular production o f procurement statistics once the web-based procurement software becomes fully operational. Supporting Institutionalization at the Entity Level 4.73 According to Act 663 (15) a procurement entity "is responsible for procurement" subject to the Act and other conditions. The definition o f a procurement entity has been subject to some confusion which led PPA to issue a clarification included inthe 2006 Annual Report. It has been spelled out that procurement entities, among other things, are characterized by having an account 79 holder as its head, a budget at its disposal, and authority to undertake procurement and enter into contracts. 4.74 As stipulated in section 17 o f Act 663, each entity is required to establish an Entity Tender Committee in charge o f approving procurement decisions at the entity level below a defined threshold. Section 20 o f the Act also provides for Tender Review Boards at central, ministerial, regional and district level for concurrent approval over the thresholds o f the Entity Tender Committees. 4.75 While it is estimated by PPA that about 80 percent o f the Entity Tender Committees (ETCs) and the corresponding Review Boards have been established throughout the country, the PPA has rightly identified capacity building as a main priority to make them operational and facilitate their ability to comply with Act 663. It i s a welcome development that PPA's short- term training program identifies ETCs and Tender Review Board (where these still exist, see below) members as a primarygroup to undergo training. 4.76 Another important target group for the short-term training program i s the procurement practitioners. The procurement staff (and other staff directly involved in procurement at the entity level) will be exposed to all o f the 25 modules developed for the training program. 4.77 According to the Training Needs Assessment carried out for PPA, IAA and GAS last year, 18 o f 38 entities assessed did not have a dedicated procurement unit in place. Hence, the function as head o f the procurement unit i s in these cases typically left to other heads who take this responsibility on in addition to their regular (non-procurement) tasks. This may have negative implications for taking a comprehensive approach to procurement in particular if the annual procurement volume constitutes a significant part o f the entity's annual expenditures. 4.78 The PPA has correctly noted the need to clarify and possibly simplify the current number o f review boards. According to the implementation plan for the short-term training program, PPA has indicated that certain Entity Tender Committees will assume "functions o f the current Tender Review Boards in addition to their Entity Tender Committee function". Notwithstanding the final decision, the overriding consideration should be the design o f an expedient and effective system for procurement procedures. 4.79 In addition to the above mentioned procurement related committees, boards and units, many procurement entities still have to establish and staff internal audit units, as noted in the 2006 annual report fkom the internal audit agency. The IAA has as o f December 2006 overseen the establishment o f 97 Internal Audit Units.As part o f its annual report, the IAA carried out an evaluation o f 20 Ministries, 45 Departments and Agencies, and seven MMDAs to establish the status o f internal auditing. Among its findings, the evaluation concluded that 26 percent o f the entities assessed had an internal audit charter in place, 65 percent o f the entities lacked the requisite professional resources to execute audit assignments, and the majority was yet to establish Audit Report Implementation Committees (ARICs), as mandated by the law. 4.80 PPA will benefit from working closely with the IAA to ensure that the internal auditors are sensitized to the role o f procurement and how procurement related functions and processes should be controlled. Inthis context it i s encouraging to note inthe IAA 2006 Annual Report that 80 the Agency intends in 2007 to direct IAUs to include procurement (including contract management) in their audit plans, assignments and reports. To further support this activity, the IAAhas also developeda checklist specifically for review ofprocurement procedures. 4.81 Finally, it should be mentioned that full institutionalization o f the national procurement systemrests on the decision o f the various development partners to make the widest possible use o f the national system. A 2006 study carried out by COW1 on water and sanitation related procurement by a number o f development partners in Ghana reveals a mixed picture: Some DPs such as DFID use the Ghanaian national system. The World Bank (WB) uses national procedures mainly in relation to National Competitive Bidding (NCB), subject to some restrictions such as inthe use o f domestic preference margin inthe evaluation o f bids. WB uses its own procedures for international competitive tendering. Other DPs predominantly apply their own procedures. This picture was confirmed by stakeholders consulted duringthe evaluation. AdministrativeReview 4.82 A recent andwelcome institutional development is the establishment o f the Appeals and Complaints Panel (ACP) which replaced the Board o f the PPA as the administrative review body. An October 2006 document prepared by the Appeals and Complaints Task Force outlines the composition and procedures for the Panel. However, since the ACP is part o f PPA and 4 PPA officials are among its seven members, it is not fully independent and autonomous from the rest o f the system with regard to resolving complaints. PPA i s considering various options to strengthen further the autonomy and independence o f the ACP. 4.83 Given that no decisions have been taken so far with respect to the complaints received by the Board, it will be important to ensure that the Panel has in place procedures that allow for effective and expedient processing o f received complains. Section 5 o f the "proposed rules and procedures for the establishment o f the appeals and complaints panel" sets out deadlines for expedient registration and acknowledgement o f complaints by the Panel, but no specific deadlines have been issued with respect to the Panel's hearing o f appeals and complaints. It i s instead proposed that the Panel be guided by "its diary". It will be important to assess once the panel has been in operation for a period o f 6 months to one year whether it satisfies the expectations for expedient, fair and independent processing based on relevant evidence. One important indication will be whether decisions have beentaken with respect to the cases already received by the Board and whether decisions have been published in a timely manner. Special attention should be givento potential areas o f interference and conflict o f interest. Strengtheningrelationswith Auditor General 4.84 The PPA has already demonstrated will and capacity to establish a strategic relationship with the office o f the Auditor General (GAS). For example, a training needs assessment was carried out at their joint initiative (IAA was also included) in 2006 to assess awareness and implementation o fthe Acts for external audit, internal audit andprocurement. 4.85 The relation with the GAS is also formalized insection 91 o f Act 663 inwhich it i s stated that the Auditor General shall ''conduct annual audits o f the procurement activities (,,.)'I and 81 "also carry out specific audits into the procurement activities o f entities and compliance by contractors, suppliers, and consultants ...'I. 4.86 As documented by the annual reports from the GAS, procurement i s covered in the normal financial audits o f the entities. Despite the existence o f procurement-related findings in the regular audit reports, consultations with the GAS and PPA revealed that copies o f these reports are not systematicallyrequested by the PPA as the Act provides for. 4.87 Moreover, there i s no evidence o f the Board requesting the GAS to carry out specific procurement audits into the procurement activities o f entities and compliance by contractors with the procurement requirements in the Act as the Act provides for as well. Hence, to improve performance and compliance at the entity level, it will be critically important for the PPA to further develop its relationship with the Ghana Audit Service. An important step has been taken with the GAS decision to strengthen the procurement expertise o f its auditor corps with financial support from a World Bank grant. Likewise the PPA rightly decided to include auditors in its target groups for the forthcoming short-term training program. Partnershipsfor capacitybuildingandprofessionaldevelopment 4.88 The need for capacity buildingtraining is fblly acknowledged inthe PPA strategic plan. Inthis context it is encouraging that a short-term training program has been developed with the close involvement o f GIMPA. Inthe future it may be useful for PPA to involve GIMPA in the selection o f candidates to carry out initial "training o f trainers" workshops. Considering that this i s a critical step for the effectiveness o f the overall program, the involvement o f an experienced training institution could add value to this part o fthe process 4.89 Looking beyond the short-term training module, it will be important for PPA that a broad array o fmedium and long-term quality courses inprocurement i s offered on a regular basis. Such courses targeted at the formal education o f procurement professionals are already on offer by GIMPA (higher national diploma top up, diploma, and BSc degree in procurement) and other tertiary training institutions. Also, GIMPA i s already using PPA's training modules in its courses. However, information and training programs should regularly be offered and tailored to the private sector to be capable to meet the public procurement requirements, e.g. tender preparation, contract management, right to review decisions. CONCLUSIONSAND NEXT STEPS 4.90 The public procurement assessment has documented that the functional and formal features o fthe public procurement system inGhana are at above average level. This is the case in particular o f the quality o f the legal framework and the institutional set-up o f the Public Procurement Board. 4.91 The Ghanaian commitment to procurementreform is underlined by the fact that the PPA has been very proactive in developing the PPME-tool for assessment o f procurement entities. Commitment has also been demonstrated through efforts to follow up on most o f the recommendations singled out inthe 2003 CPAR. 82 4.92 At the same time a number o f challenges have been identified. The PPME-assessment tool can be further improved to provide a more solid and representative basis for monitoring compliance and performance at the entity level. Access to high-quality performance data will be vitally important for PPA to develop corrective measures and strategies to increase procurement proficiency and efficient operations. 4.93 Moreover, the need to focus on performance and implementation was confirmed by the joint assessment, and the current efforts to roll-out a nation-wide training program are therefore considered timely and a very relevant response to the current challenges. Capacity development at all levels, including mainstreaming procurement, institutional development capacity, procurement operations and contract administration, public procurement market and internal and external audits i s considered to be the key challenge inthe coming years. 4.94 While the 2007 review has demonstrated that the PPA Strategic Plan 2007 - 2009 i s well aligned with the findings o f the assessment, it has also shown that some challenges emerging from the review are not identified inthe Strategic Plan. With respect to next steps it i s proposed that the Government and the PBB consider adopting the key recommendations outlined above. 83 ANNEXESTO VOLUME I 84 ResultsMatrix For PI-1 for PI-2 variance year total exp. Deviation' total exp. Variance2 inexcess o f total deviation3 2004 2.3% 15.8% 13.6% 2005 12.4% 25.9% 13.4% 2006 6.0% 28.8% 22.9% Note: 1. Calculated as the difference between actual primary expenditure and the originally budgeted primary expenditure (Le. excluding debt service charges and externally financed project expenditure). 2. Calculated as the deviation between actual and originally budgeted expenditure calculated as a percent o f budgeted expenditure on the basis o f the administrative (MDA) classification, using the absolute value o f deviation (excluding debt service and externally-financed project expenditures). 3. Extent to which variance in primary expenditure composition exceeded overall deviation in primary expenditure, measured as the difference between total expenditure variance and total expenditure deviation Sources: Appropriation Acts 2004, 2005 and 2006 (budget figures); CAGD Annual Financial Statements, 2004-2006 (actual expenditures). Annex 2: Transparencyof BudgetInformation Introduction Transparency and information can be important tools to assist governments with their reforms. Access to timely, accurate, comprehensive and useful information on the state's fiscal activities helps ensure accountability o f the government to its population. Specific objectives o f greater provision o f such information can include: (i) to enhance the role o f external scrutiny o f the use o f budgetary o f resources (Le. accountability for the use o f taxpayers' money); (ii) to improve the link between.public priorities and expenditures through facilitating a greater public voice in the budget process; (iii) increase awareness and understanding o f the use o f public resources; to (iv) and thereby to stimulate greater demand by the public for the appropriate use o f these resources; (v) to help the legislature understand the budget they are asked to approve; and (v) to enable internal budget processes (e.g. budget execution) to be undertakenmore efficiently. In this regard, GoG's commitment to improving the public's access to budget information is evident. It actively seeks engagement from the public in the budget-making process, makes available the Budget Statement to civil society, the media and the wider public, and provides fiscal information on MoFEP's website. Nonetheless, some o f the information could be made in a more timely manner, and greater accessibility to the wider public, both in terms o f availability o f information, as well as its understandability, could be improved. Information flows concern two main types: (i) those concerning information for internal PFM processes, such as budget execution, for those both directly and more broadly involved (e.g. transfers o f appropriations between andwithin agencies, and the process behind funds releases to MDAs and MMDAs for specific items); and (ii)budget information in an accessible and understandable manner to the public to inform them o f the availability and use o f resources and help their engagement inthe wider process o f ensuringaccountability for the use o fpublic funds. Budgetinformationalreadypubliclyavailable MoFEP already publishes a wide range o f information on its website, including current and past Budget Statements and Economic Policy, the Minister's budget speeches, other officials' speeches, analyses o f debt trends, and a limited number o f monthly CAGD budget execution reports. In addition, the Budget Statement i s readily available inprinted form at the time o f the Minister's Budget Speech. Improvements to the public availability o f existing information could be made. The end-of-year Financial Statements and audit reports are not easily available to the public. Interms o f in-year reporting, whilst some monthly CAGD reports appear on the website, in November 2007, the most recent report posted on the MoFEP website was for March 2007. The value o f this information i s inthe timeliness o f the information to ensure that the monitoring o f expenditure is up-to-date and relevant. Keeping the monthly expenditure information up-to-date should be a relatively simple process, but it may require establishing a regular (institutional) routine to ensure that the posting o fthe information is systematic. 89 Budget information beyond that o f the annual Budget Statement could be disseminated to a wider audience without access to the internet through: More use o f the print and radio/TV media; public access points, such as libraries; external groups, such as development partners, NGOs or civil society organizations who work with communities, to disseminate; communityhillage groups; and development o f a program to buildpublic awareness o f the importance andrelevance o f the budget and the budget process, incorporating a series o f public districthillage meetings. Budgetinformationwhich couldbeprovided Understanding and engaging with the budget process i s important for the wider public to build increased transparency and lead to better spending outcomes. In 2006, MoFEP produced a Citizen's Budget, setting out a simplifiedversion o f the 2006 Budget. In mid-2007, a Citizen's Budget for the 2007 Budget was prepared. The usefulness o f these budgets would be enhanced bymaking them widely available once the budget has beenpresented to Parliament. Inadditiontowider andmoretimelydisseminationoftheCitizen's Budget, asimpleexplanation o f the overall budget process in cartoon form, setting out the role o f civil society in helping to determine budget priorities and inmonitoring bud et outcomes to verify that these priorities are being followed inpractice, could help this process!' A broadrange o finformation disseminated in a range of formats would be worth considering. Inturn, better engagement with the budget process by civil society is dependent on the information available on the government's intentions, spending and actual delivery, and on the public's capacity and willingness to engage. Inorder to ensure better-informed consultation andparticipation, information should bewidely available in a form that i s understandable to a non-technical audience, may also need to be translated. The following tables provide suggestions on the types o f budget information which could be provided more widely, taking into account the: (i) accessibility of information; (ii) timeliness o f the provision o f information; and (iii) digestibility o f the information. 60MoFEP's website contains a short briefing document on the budget hearing, but this type of informationcould be made more prominent and more of this type ofbriefing could be produced. 90 Table 1: BudgetInformationfor the Wider Public Type ofInformation CurrentDissemination Remarks Annual Budget Statement Inprint andon MoFEPwebsite Widely disseminated SupplementaryBudget MoFEPwebsite Widely disseminated Minister'sBudget Speech Inprint andMoFEPwebsite Widely disseminated MTEFhudget books Not readily available Couldbe addedto MoFEPwebsite Appropriation Act Not readily availableto the wider public Couldbe addedto MoFEPwebsite Citizen's Budget Not availableto the public inatimely manner Whenprepared, couldbeaddedto the website GPRSII IMoFEPwebsite 1Linksto NDPCwebsite couldbemade Pre-Budget Policy/Strategy Ifprepared,not publicly available Couldbe addedto MoFEPwebsite Paper Mid-Year Budget Statement Ifprepared,notpublicly available Couldbe added to MoFEP website BudgetGuidelines(circular) Not publicly available Couldbe added to MoFEP website Macroeconomicdatdreports Ad hoc datdreportsare availableon MoFEP Linksinthe MoFEPwebsite couldbemadeto website theregularmacroreportsproducedby BOG Debtdatdreports Ad hoc datdreports are availableonMoFEP website Monthly CAGD fiscal MoFEPwebsite Timelinesshasbeenan issue - shouldbe outturnreports publishedon the website as soonas it is ready (and within 4-6 weeks of end of month) CAGD Year-end financial Not easily publicly available Couldbe added to MoFEP's website statements Audited accounts Not easily publicly available Couldbe added to MoFEP's website, as well as GAS'. Linksto GAS website couldbe made, when operational. Audit reports Not easilypublicly available Couldbe added to MoFEP's website, as well as GAS'. Linksto GAS website couldbe made, when operational. Awards of procurement Not easily publicly available A comprehensivelist of contracts couldbe contracts addedto MoFEP's website. Linksto PPA website could be made. MMDA budgets-planned Not currentlyreadily availableto the public and executed Budgetsof Statutory Funds- Not currentlyreadily availableto the public Revenueand ExpenditureStatements for prior plannedandexecuted years' StatutoryFundsare includedinthe annual BudgetStatement Informationon total executed Suchinformationis not yet readilyavailable expendituresby sector andby geographic area Informationon totalplanned Suchinformationis not yet readilyavailable expendituresfor individual service deliveryunits Informationon service Suchinformationis not yet readilyavailable deliveryperformance The following information items (Table 2) could also bemade available to the public onrequest. Table 2: AdditionalInformationWhich CouldbeMadeAvailableto the Publicon Request Type of Information Remarks Informationon total planned and executed Will require consolidation o f MDA and MMDA data expendituresby sector andby geographic area Informationon total planned and executed Will require work on the flows o f information. PETS expenditures for individual service delivery analyses currently underway should provide supplementary units data inhealth and education sectors. More detailedbudget execution reports, Willrequire changes inhow informationis coded -coding showing budget implementationby main changes currently being planned. agencies, function, as well as economic items More disaggregated informationfrom MDAs (e.g. supporting documentationbehind determination o fbudget allocations) Informationon service delivery performance Collection o fthis informationwill be longer-terminnature. 92 Annex 3: StatisticalAnnex 93 Annex 3: Statistical Annex 93 Table 1: OverallFiscalPerformance, 2003-2007 Table 2: RevenuePerformance, 2004-2006 Table 3: CollectionandRetentionof InternallyGeneratedFunds,2004-2007 Table4: Total Spendingby LineItem,2004-2007 Table 5: GhanaBudget Estimatesand OuthunbyBroadFunctionalClassification,2004-2006 Table 6: VotedandActual Government DiscretionaryExpenditurebyMDA andItem2004-2007 Table 7: TotalExpendituresbyBroadClassificationandAll SourcesofFunds, 2004-2007 Table 8: VotedandActual PovertyExpenditure, 2006-2007 Table 9:ProjectedPoverty Expenditureand Source ofFunds, 2006 Table 10:Actual Poverty Expenditureand Source of Funds,20066 Table 11: ProjectedPovertyExpenditureand Source ofFunds, 2007 Table 12:EducationSector-ExpendituresbyProgramand Source ofFunds, 2004-2006 Table 13:Health Sector - Expendituresby Programand Source of Funds, 2004-2006 Table 14:2006Budget and GPRSII Table 15:2007 Budget andGPRSII 94 Table 1:OverallFiscalPerformance, 2003-2007 2003 2004 2005 2006 2006 2007 Actual Actual Actual Budget Prelim. Budget Billion Cedis Total Revenues and Grants 16,862 24,074 28,256 34,136 31,764 39,123 Ownrevenue 13,743 18,994 23,156 26,439 25,569 30,178 Grants 3,119 5,080 5,100 7,697 6,195 8,945 Total Expenditures 19,035 26,584 29,895 38,884 40,051 45,235 Non-interest expenditure 14,943 23,111 26,355 35,393 36,160 41,587 Interest expenditure 4,092 3,473 3,450 3,491 3,891 3,648 Aggregate Deficit' -2,884 -2,836 -2,869 -4,749 -8,917 -6,112 Notes: 1. After outstanding payments clearance, VAT refunds and including grants and discrepancy. Source: Ghanaian authorities, IMF Staff Report (June 2007) Table 2: RevenuePerformance, 2004-2006 2006 Yo Dev. btwn 2004 2005 2006 2006 Prelim & YOIncrease Actual Actual Budget Preliminary Budget 2005-2006 Billion Cedis YO % Direct taxes 5,344 6,615 7,269 7,341 1.0% 11.0% Personal 2,194 2,782 2,683 3,510 30.9% 26.2% Company 2,340 3,108 3,789 3,154 -16.8% 1.5% Other 810 725 797 677 -15.0% -6.6% Indirect taxes 8,250 9,416 12,087 11,129 -7.9% 18.2% VAT 4,516 4,987 7,032 6,230 -11.4% 24.9% Domestic 1,460 1,832 2,318 2,335 0.7% 27.5% Imports 3,056 3,155 4,714 3,895 -17.4% 23.5% Petroleum 3,119 3,751 4,175 4,152 -0.6% 10.7% Excise 615 678 880 747 -15.1% 10.2% Internationaltrade taxes 3,809 4,114 4,859 3,991 -17.9% -3.0% Tax revenuessub-total 17,403 20,145 24,214 22,461 -7.2% 11.5% Non-tax revenues' 2,206 3,107 2,278 2,841 24.7% -8.6% NHIL 0 1,157 1,514 1,247 -17.6% 7.8% Grants 5,080 5,100 7,697 6,195 -19.5% 21.5% TOTAL REVENUESAND GRANTS 24,689 29,509 35,703 32,744 -8.3% 11.0% Notes: 1. IGFs both lodged and retained. See Statistical Annex, Table 3. Source: RAGB (tax revenues), NTRU(non-tax revenues), Ghanaian authorities and IMF Staff Report (June 2007) (Grants) 95 Table 4: Total Spending by Line Item, 2004-2007 YOdev. btwn2006 YOchange 2004 2005 2006 2006 prelim& 2005- Actual Actual Budget Prelim budget 2006 Billion Cedis - YO Current expenditures 16,695 18,221 21,590 25,559 18.4% 40.3% Wages and salaries 6,988 8,243 9,990 11,370 13.8% 37.9% Goods and services 2,737 3,105 3,613 4,277 18.4% 37.7% Transfers 1,291 2,921 3,691 3,348 -9.3% 14.6% of which: to households 784 988 1,115 1,764 58.1% 78.5% to Statutory Funds 495 1,615 2,225 1,584 -28.8% -2.0% Subsidies' 2,207 412 805 2,673 232.1% 548.8% Interest payments 3,472 3,540 3,491 3,891 11.5% 9.9% Of which: domestic 2,545 2,689 2,427 3,031 24.9% 12.7% Capitalexpenditures 9,889 11,673 17,255 14,492 -16.0% 24.1% of which: domestically-financed 3,207 3,781 7,370 6,176 -16.0% 63.3% externally-financed 4,812 5,946 8,063 5,279 -34.5% -11.2% HIPC 1,870 1,947 1,822 1,792 -1.7% -8.0% MDRI 0 0 0 1,246 TOTAL 26,584 29,895 38,884 40,051 3.1% 34.0% 1/ Subsidies to energy companies. Source: MoFEP, IMF Staff Report (June 2007). Table 5: Ghanabudgetestimates andoutturn by BroadFunctionalClassification,2004-2006 DiscretionaryDomestic. FinancedExpenditure 10,513 12,694 12,474 -2% -4% Personal Emoluments 6,632 8,683 6,942 8,173 -6% 14% Administration 1,559 1,613 1,514 2,395 48% 35% Services 1,176 970 973 1,029 6% 20% Investment 1,147 1,428 681 876 -39% -58% r n n , Of which GeneralAdministration 1,910 1,818 1,713 1,960 8% -28% Personal Emoluments 762 845 865 908 7% 21% Administration 317 364 334 491 35% 17% Services 550 244 419 389 60% -4% Investment 280 366 95 172 -53% -74% EconomicServices 563 564 512 595 5% -29% Personal Emoluments 301 284 331 351 23% 25% Administration 68 66 73 101 55% -28% Services 97 54 49 38 -30% 42% Investment 97 160 59 106 -34% -68% Infrastructure 472 570 402 533 -7% -49% Personal Emoluments 73 95 87 106 12% 37% Administration 39 47 33 59 27% 5% Services 36 16 24 13 -20% 188% Investment 325 412 258 355 -14% -57% SocialServices 4,485 5,636 5,127 6,798 21% 25% PersonalEmoluments 3,933 5,033 4,611 6,052 20% 27% Administration 214 287 259 466 62% 6% Services 239 179 202 200 12% -22% Investment 100 136 55 80 -41% 34% PublicSafety 1,506 1,300 1,325 1,574 21% -2% PersonalEmoluments 1,043 739 954 719 -3% 44% 'Administration 238 327 203 678 107% 13% Services 138 66 124 94 43% -30% Source: 2004-06Appropriation Acts. 2004&05 Audited Accounts (Consolidated Fund), and 2006 Unaudited CAGD accounts for ConsolidatedFund 99 Table 6: Voted andActual GovernmentDiscretionaryExpenditure byMDA andItem,2004-2007 2004 2004 2005 2005 2006 2006 2006 2006 2007 Voted Actual Voted Actual Voted Supplementary Total Budget Actual Voted DiscretionaryDomestic Expenditure 10,513 10,110 12,694 12,474 14,670 3925.1 18545.3 17820.4 19963.3 Personal Emoluments 6,632 6,942 8,683 8,173 9,990 0.0 9990.0 11435.9 13165.8 Administration 1,559 1,514 1,613 2,395 2,187 1.5 2138.2 2886.5 3208.0 Services 1,176 973 970 1,029 809 255.4 1064.2 1274.2 996.3 Investment 1,147 681 1,428 876 1,685 3668.2 5353.0 2223.8 2593.3 Of which: General Administration 1,910 1,713 1,818 1,960 2,043 1280.2 3323.52 2377.2 2399.7 Personal Emoluments 762 865 845 908 991 0.0 991.34 1203.1 1033.0 Administration 317 334 364 491 381 0.0 381.32 444.7 575.5 Services 550 419 244 389 306 22.9 328.45 313.7 353.3 Investment 280 95 366 172 365 1257.3 1622.41 415.7 438.0 Of which: Min. of LocalGovernment and Rural Devt 172 177 181 213 200 27.4 227.16 261.7 326.3 Personal Emoluments 128 147 138 164 156 0.0 156.1 240.2 275.3 Administration 6 10 6 11 6 0.0 6.0 6.8 9.0 Services 21 19 13 10 13 0.0 13.0 8.2 14.8 Investment 17 11 25 29 25 27.4 52.1 6.5 27.2 Discrepancy -10 Office of Government Machinery 527 452 528 490 657 731.6 1388.34 683.9 501.7 Personal Emoluments 179 154 177 125 284 0.0 284.4 190.4 78.8 Administration 59 26 75 72 80 0.0 80.0 81.3 120.5 Services 201 224 134 255 150 9.2 159.2 166.4 170.3 Investment 87 48 142 38 142 722.4 864.7 245.8 132.1 Min. of Foreign Affairs 474 521 512 593 515 45.7 561.19 632.7 663.6 Personal Emoluments 224 316 270 339 270 0.0 270.0 368.5 309.7 Administration 160 154 143 206 147 0.0 147.0 175.8 227.5 Services 35 18 12 9 12 0.0 11.8 18.2 23.0 Investment 55 2 87 39 87 45.7 132.4 70.2 103.4 Discrepancy 31 Min. of Finance 177 226 232 296 237 384.1 620.97 354.1 359.8 Personal Emoluments 83 97 107 125 99 0.0 98.7 173.6 161.6 Administration 29 88 38 106 40 0.0 40.0 65.1 60.0 Services 39 34 43 41 54 0.0 53.8 57.4 61.1 Investment 27 7 44 24 44 384.1 428.5 58.0 77.1 Min.of Parliamentary Affairs 4 3 7 6 3 0.0 3.4 7.7 10.2 Personal Emoluments 0 0 0 0 0 0.0 0.2 0.3 0.5 Administration 1 1 1 1 1 0.0 0.9 3.6 1.3 Services 1 0 0 0 0 0.0 0.2 0.5 3.1 Investment 2 1 h " A L 0.0 2.0 3.3 5.3, 100 2004 2004 2005 2005 2006 2006 2006 2006 2007 Voted Actual Voted Actual Voted Supplementary TotalBudget Actual Voted Audit Service 80 67 90 81 115 0.0 115.1 103.7 143.4 Personal Emoluments 35 42 25 32 48 0.0 48.0 40.8 49.1 Administration 11 8 41 37 43 0.0 43.0 50.3 64.5 Services 22 16 10 9 10 0.0 10.1 5.8 11.5 Investment 11 1 14 2 14 0.0 14.0 6.8 18.3 PublicServices Commission 5 3 4 5 4 0.0 4.1 5.1 5.1 Personal Emoluments 2 1 2 4 2 0.0 1.7 3.0 2.0 Administration 1 1 1 1 1 0.0 1.3 1.3 1.5 Services 1 0 0 0 0 0.0 0.3 0.3 0.4 Investment 1 1 1 0 1 0.0 0.8 0.5 1.2 National Electoral Commission 207 78 32 35 34 0.0 33.5 47.0 41.8 Personal Emoluments 16 21 17 23 19 0.0 18.6 31.4 22.1 Administration 6 4 6 5 6 0.0 6.0 11,.6 9.5 Services 158 52 5 5 5 0.0 5.3 1.5 4.2 Investment 27 1 4 3 4 0.0 3.7 2.5 6.0 OMce of Parliament 134 106 120 144 164 64.0 227.70 171.O 219.1 Personal Emoluments 38 45 50 45 62 0.0 61.8 92.0 71.1 Administration 30 30 32 31 33 0.0 33.0 26.3 51.5 Services 36 21 10 37 42 0.0 41.9 35.1 51.0 Investment 30 10 27 30 27 64.0 91.0 17.6 45.5 General Government Services 0.0 0.0 0.0 Personal Emoluments 0 0.0 0.0 0.0 Administration 0 0.0 0.0 0.0 Services 0 0.0 0.0 0.0 Investment 0 0.0 0.0 0.0 District Assembly Common Fund 1 1 1 1 1 0.0 1.o 0.6 1.6 Personal Emoluments 0 0 0 0 0 0.0 0.3 0.4 0.5 Administration 0 0 0 0 0 0.0 0.4 0.2 0.5 Services 0 0 0 0 0 0.0 0.0 0.0 0.0 Investment 1 0 0 0 0 0.0 0.4 0.0 0.6 Planningand Regional Cooperation 46 39 26 27 36 35.62 16.4 22.7 Personal Emoluments 3 3 3 1 3 3.3 1.1 1.6 Administration 3 3 3 4 6 5.8 4.2 2.7 Services 23 23 12 21 14 14.1 8.8 8.1 Investment 18 11 9 1 12 12.5 2.3 10.4 Min.of Informationand PresidentialAffairs 84 62 86 71 78 27.4 105.39 93.3 104.3 Personal Emoluments 53 40 57 51 48 48.3 61.4 60.7 Administration 11 8 18 16 18 18.0 18.2 27.0 Services 15 12 5 3 5 13.7 18.8 11.5 5.7 Investment 5 2 7 2 7 13.7 20.3 2.2 10.9 EconomicServices 563 512 564 595 693 477.1 1170.15 829.6 721.3 Personal Emoluments 301 331 284 351 352 0 352 439 339 Administration 68 73 66 101 90 2 91 66 58 Services 97 49 54 38 55 31 86 123 43 Investment 97 59 160 106 196 444 641 202 281 101 2004 2004 2005 2005 2006 2006 2006 2006 2007 Voted Actual Voted Actual Voted Supplementary Total Budget Actual Voted Of which: 0 Min. of Foodand Agriculture 143 132 222 189 257 109.8 366.71 377.9 338.2 Personal Emoluments 88 98 101 134 121 0.0 121.0 161.6 178.3 Administration 17 19 17 18 12 0.0 11.5 14.0 10.3 Services 20 5 8 10 5 0.0 4.8 57.4 5.4 Investment 18 10 97 27 120 109.8 229.4 144.9 144.2 Min. of Lands and Forest 76 83 80 76 89 0.0 89.3 96.8 129.5 Personal Emoluments 42 46 49 57 59 0.0 59.1 72.6 84.1 Administration 10 8 11 9 9 0.0 9.0 7.5 13.1 Services 16 8 5 8 6 0.0 5.5 14.4 7.6 Investment 8 21 16 2 16 0.0 15.6 2.3 24.8 Min.of Energy 52 40 27 22 31 311.0 341.74 39.1 51.8 Personal Emoluments 7 2 4 1 4 0.0 3.7 7.4 8.9 Administration 6 21 5 3 3 0.0 3.3 3.0 5.0 Services 7 4 2 1 2 0.0 1.8 1.4 2.0 Investment 32 14 17 17 22 311.0 332.9 27.3 35.9 Min.of Trade and Industry 94 51 71 109 82 0.0 82.3 70.9 125.4 Personal Emoluments 29 23 22 28 27 0.0 26.9 33.4 40.8 Administration 17 9 11 16 16 0.0 16.1 9.2 18.6 Services 24 12 29 I O 29 0.0 28.9 16.5 21.6 Investment 24 7 10 54 10 0.0 10.4 11.8 44.4 Min of Tourism 17 13 22 15 28 56.3 83.84 55.2 40.3 Personal Emoluments 4 4 4 7 5 0.0 5.5 10.5 6.2 Administration 4 5 4 4 5 1.5 6.7 5.8 7.6 Services 6 4 3 3 3 31.2 33.9 25.8 3.2 Investment 3 1 11 1 14 23.6 37.7 13.1 23.3 Ministry of Environment and Science 158 175 129 165 180 180.4 178.8 0.0 Personal Emoluments 127 154 104 1I 6 128 128.1 145.5 Administration 11 9 14 45 40 40.5 24.8 Services 15 10 6 4 7 6.5 6.5 Investment 5 2 5 1 5 5.3 2.0 Ministry of PrivateSector Development 8 7 13 9 10 10.0 4.0 0.0 Personal Emoluments 0 0 2 1 3 2.5 2.6 Administration 2 1 5 3 2 1.7 0.5 Services 3 3 2 1 2 1.8 0.7 Investment 3 2 4 4 4 4.0 0.2 Ministry of Mines 15 13 0 11 16 6.9 0.0 Personal Emoluments 4 4 8 5 5.2 5.5 Administration 3 3 2 2 2.4 0.9 Services 5 4 0 3 2.9 0.0 Investment 4 2 0 5 5.3 0.5 MillenniumDevelopment Authority 20.2 Personal Emoluments 20.2 Administration 0.0 Services 0.0 102 2004 2004 2005 2005 2006 2006 2006 2006 2007 Voted Actual Voted Actual Voted Supplementary Total Budget Actual Voted Investment 0.0 Ministry of Fisheries 16.0 Personal Emoluments 0.4 Administration 3.6 Services 3.277 Investment 8.721 Infrastructure 472 402 570 533 783 1317.1 2100.00 1076.0 1286.6 Personal Emoluments 73 87 95 106 100 0.0 100.06 137.5 171.2 Administration 39 33 47 59 35 0.0 35.02 36.7 54.3 Services 36 24 16 13 20 0.0 19.63 56.6 26.9 Investment 325 258 412 355 628 1317.1 1945.30 845.2 1034.3 Of which: 0 Min.of Works and Housing 98 81 92 136 109 375.0 484.24 193.9 171.1 Personal Emoluments 26 27 30 37 36 0.0 36.0 48.9 55.0 Administration 11 10 13 14 10 0.0 10.0 9.8 15.0 Services 6 6 4 4 5 0.0 5.O 3.8 5.7 Investment 56 37 45 81 58 375.0 433.2 131.4 95.4 Min.of Roadsand Transport (excl. R.F.) 326 295 429 365 621 868.9 1489.85 834.4 1010.2 Personal Emoluments 39 47 54 54 53 0.0 52.6 70.9 85.8 Administration 18 17 24 38 16 0.0 15.8 16.9 23.7 Services 18 11 7 6 9 0.0 9.2 50.0 10.5 Investment 250 220 344 267 543 868.9 1412.1 696.6 890.2 Min.of Communication 35 21 26 22 33 0.0 33.3 25.9 60.3 Personal Emoluments 7 12 9 14 11 0.0 10.5 17.0 28.4 Administration 5 4 4 4 6 0.0 6.0 6.1 6.4 Services 8 5 3 2 3 0.0 3.2 1.7 3.3 Investment 15 0 11 2 14 0.0 13.6 1.1 22.2 Ministry of Harborsand Railways 13 5 22 11 19 73.2 92.60 21.8 29.5 Personal Emoluments 1 0 1 1 1 0.0 0.9 0.7 0.7 Administration 4 2 6 4 3 0.0 3.2 3.9 4.8 Services 4 2 2 2 2 0.0 2.2 1.1 2.5 Investment 4 1 13 5 13 73.2 86.4 16.1 21.5 Ministry of Aviation 15.5 Personal Emoluments 1.3 Administration 4.4 Services 4.9 Investment 5.0 Social Services 4,485 5,127 5,636 6,798 7,459 347.6 7806.88 9742.8 10644.1 Personal Emoluments 3,933 4,611 5,033 6,052 6,693 0.0 6693.32 8531.0 9548.8 Administration 214 259 287 466 438 0.0 437.60 463.2 624.8 Services 239 202 179 200 193 91.5 284.09 222.6 235.4 Investment 100 55 136 80 136 256.1 391.86 526.0 235.1 Of which: 0 Min.of Education (exc1.G.E.T.F.) inc. Y&S 3,332 3,984 3,920 5,115 5,370 256.1 5626.57 7014.8 7927.8 Personal Emoluments 3,025 3,631 3,625 4,555 4,900 0.0 4900.0 6126.3 7255.7 Administration 117 212 160 368 325 0.0 325.0 319.9 487.4 Services 130 111 91 .. 154 101 0.0 100.7 104.2 114.3 103 2004 2004 2005 2005 2006 2006 2006 2006 2007 Voted Actual Voted Actual Voted Supplementary Total Budget Actual Voted Investment 60 30 45 39 45 256.1 300.9 464.4 70.4 Min.of Youth and Sports 0.0 0.0 Personal Emoluments Administration Services Investment Min.of Manpower Devel. and Employm. 43 43 71 61 73 0.0 73.2 79.5 103.3 Personal Emoluments 32 34 45 42 54 0.0 54.5 64.0 75.9 Administration 5 5 9 7 4 0.0 4.4 6.5 6.6 Services 5 4 6 5 6 0.0 5.6 6.4 6.3 Investment 2 1 11 7 9 0.0 8.9 2.6 14.5 National Comm.for Civic Education 41 36 31 32 29 0.0 29.0 36.0 38.9 Personal Emoluments 22 21 17 20 17 0.0 16.8 20.0 20.5 Administration 4 3 10 10 8 0.0 7.9 14.0 12.4 Services 8 6 2 2 2 0.0 2.1 1.5 2.4 Investment 7 6 2 0 2 0.0 2.2 0.5 3.6 National Comm.for Culture 21 21 44 27 42 0.0 42.3 45.5 60.6 Personal Emoluments 14 17 15 17 15 0.0 15.0 23.2 17.8 Administration 4 2 6 7 5 0.0 5.3 6.0 8.2 Services 2 1 3 1 3 0.0 2.7 3.3 3.O Investment 1 0 19 3 19 0.0 19.3 13.0 31.6 Min of Health (excl. N.H.I.F.) 1,028 1,021 1,552 1,547 1,920 91.5 2011.63 2553.6 2482.0 Personal Emoluments 839 907 1,329 1,418 1,703 0.0 1702.9 2295.9 2175.6 Administration 78 31 96 69 90 0.0 90.0 111.5 102.7 Services 86 75 74 33 74 91.5 165.2 102.8 100.4 Investment 25 8 54 28 54 0.0 53.6 43.4 103.3 National Media Comm. 2 1 2 2 1 0.0 1.1 1.7 1.7 Personal Emoluments 0 0 0 1 0 0.0 0.3 0.8 0.4 Administration 1 1 1 1 1 0.0 0.6 0.8 1.o Services 0 0 0 0 0 0.0 0.1 0.1 0.1 Investment 0 0 0 0 0 0.0 0.1 0.0 0.2 Minof Women Affairs 19 21 16 14 17 0.0 17.4 11.7 21.9 Personal Emoluments 1 1 2 0 2 0.0 2.2 0.8 0.9 Administration 5 6 6 5 4 0.0 3.8 4.5 5.7 Services 7 6 4 5 7 0.0 6.6 4.3 7.5 Investment 5 9 5 3 5 0.0 4.7 2.1 7.8 National Labor commission 6 0.0 5.7 0.0 7.9 Personal Emoluments 2 0.0 1.7 2.0 Administration 1 0.0 0.6 0.8 Services 1 0.0 1.2 1.4 Investment 2 0.0 2.2 3.7 Public Safety 1,506 1,325 1,300 1,574 1,761 503.1 2263.97 2221.5 3136.3 Personal Emoluments 1,043 954 739 719 731 0.0 731.21 1050.1 1441.1 Administration 238 203 327 678 771 0.0 770.63 870.7 1245.7 Services 138 124 66 94 97 109.8 207.24 146.1 170.5 Investment 87 44 168 82 162 393.3 554.89 154.6 279.0 2004 2004 2005 2005 2006 2006 2006 2006 2007 Voted Actual Voted Actual Voted Supplementary Total Budget Actual Voted Ministry ofJustice 39 34 85 44 87 27.4 114.54 77.6 122.8 Personal Emoluments 15 17 18 17 18 0.0 18.3 23.6 22.7 Administration 11 10 12 13 13 0.o 13.0 18.2 26.6 Services 8 5 5 4 5 0.0 4.8 8.1 5.4 Investment 5 2 51 9 51 27.4 78.4 27.7 68.1 Ministry of Defence 636 507 408 582 671 146.4 817.45 894.5 1034.5 Personal Emoluments 493 386 285 223 283 0.0 282.7 385.6 458.6 Administration 51 30 54 288 300 0.0 300.0 364.6 449.9 Services 63 63 31 33 37 109.8 147.3 62.7 47.3 Investment 30 28 39 38 51 36.6 87.5 81.6 78.7 CHRAJ 26 21 25 25 29 0.0 29.0 27.5 36.4 Personal Emoluments 17 14 16 17 20 0.0 19.5 18.6 22.4 Administration 5 4 7 7 7 0.0 7.1 7.1 10.7 Services 2 2 1 1 1 0.0 1.1 0.7 1.3 Investment 2 1 1 0 1 0.0 1.2 1.1 2.0 Judicial Services 130 87 157 135 147 36.6 183.91 163.0 208.5 Personal Emoluments 81 64 63 67 70 0.0 70.0 104.5 90.6 Administration 24 17 46 44 50 0.0 50.0 43.1 77.1 Services 5 3 7 7 8 0.0 7.9 3.7 9.0 Investment 20 3 41 17 19 36.6 56.0 11.7 31.8 Min.of Interior 675 677 624 789 826 292.7 1119.07 1058.9 1367.2 Personal Emoluments 438 473 356 395 341 0.0 340.7 517.8 632.9 Administration 147 143 209 326 401 0.0 400.5 437.7 632.2 Services 60 51 23 50 46 0.0 46.1 70.9 58.2 Investment 30 9 36 18 39 292.7 331.8 32.5 43.9 Ministry of National Security 366.9 Personal Emoluments 213.9 Administration 49.2 Services 49.3 Investment 54.5 Utility 319 16 320 0 300 300.0 0.0 318.6 Personal Emoluments Administration 319 76 320 300 300.0 0.0 318.6 Services Investment Revenue Agencies 388 347 498 413 595 0.0 594.6 642.9 813.5 Personal Emoluments 209 43 250 12 373 0.0 372.6 49.7 463.1 Administration 75 270 104 394 75 0.0 75.0 593.2 141.5 Services 28 8 39 6 42 0.0 42.3 0.0 64.1 Investment 75 26 105 0 105 0.0 104.7 0.0 144.8 discrepancy Contingency 871 611 1,989 599 986 0.0 986.2 930.4 540.1 Personal Emoluments 311 49 1,438 25 749 0.0 749.4 25.4 169.8 Administration 288 266 98 205 47 0.0 47.3 412.3 86.3 Services 89 153 371 288 96 0.0 96.3 412.5 103.1 Investment 183 143 82 81 93 0.0 93.3 80.2 180.9 Source:2004-07AppropriationActs. 2004&05 AuditedAccounts (ConsolidatedFund), and2006 UnauditedCAGD accountsfor ConsolidatedFund. 105 Table 7: Total Expendituresby BroadClassificationand All Sourcesof Funds, 2004-2007 (Bn Cedis) Share of total(O h ) 2004 2004 2005 2005 2006 2006 2007 2004 2004 2005 2005 2006 2006 Budget Actual Budget Actual Budget Prel Budget Budget Actual Budget Actual Budget Prel General Administration 2623.0 2877.1 2996 3495 4848 4164 4091 8.4 8.2 6.8 8.4 8.1 6.7 CF 1910.0 1713.0 1818 1960 3324 2377 2400 6.1 4.9 4.2 4.7 5.6 3.8 HIPCli 71.9 71.9 286 511 225 845 60 0.2 0.2 0.7 1.2 0.4 1.4 IGF 79.0 39.8 41 33 145 63 35 0.3 0.1 0.1 0.1 0.1 0.1 DACF 2/ 118.1 112.4 157 105 181 192 244 0.4 0.3 0.4 0.3 0.3 0.3 Grants and Loans 444.0 940.0 694 885 970 686 1352 1.4 2.7 1.6 2.1 1.6 1.1 EconomicServices (incl. Infrastructure) 4018.7 5278.0 7452 7173 10775 7987 12818 12.9 15.0 17.0 17.2 18.2 13.4 CF 1035.0 914.5 1134 1128 3270 1906 2008 3.3 2.6 2.6 2.7 5.5 3.1 HIPC 11 403.6 693.8 921 809 572 1411 2246 1.3 2.0 2..1 1.9 1.0 2.3 IGF 87.5 151.9 163 91 313 116 281 0.3 0.4 0.4 0.2 0.5 0.7 DACF 2/ 262.9 267.3 364 239 614 653 830 0.8 0.8 0.8 0.6 1.o 1.1 RoadFund 607.7 640.0 883 927 1069 1064 1134 1.9 1.8 2.0 2.2 1.8 1.7 PetroleumFund 75.0 70.5 81 41 29 29 30 0.2 0.2 0.2 0.1 0.0 0.0 Grants and Loans 1547.0 2540.0 3906 3938 4907 2808 6289 4.9 7.2 8.9 9.4 8.3 4.5 Social Services 7996 9296 11325 10860 14065 15367 17957 25.6 26.4 25.9 26.0 23.7 24.5 CF 4485 5127 5635 6798 7807 9743 10644 14.3 14.5 12.9 16.3 13.2 15.7 HIPC I/ 730 753 306 551 538 942 240 2.3 2.1 0.7 1.3 0.9 1.5 IGF 586 853 1116 1100 1 I44 1612 1667 1.9 2.4 2.5 2.6 1.9 2.3 DACF 21 406 369 527 358 409 436 553 1.3 1.o 1.2 0.9 0.7 0.7 GETF 811 872 1124 691 1386 922 1775 2.6 2.5 2.6 1.7 2.3 1.5 Grantsand Loans 558 1322 1278 1363 1267 949 1254 1.8 3.7 2.9 3.3 2.1 1.5 Nat. Health Fund 420 0 1339 0 1514 764 1824 1.3 0.0 3.1 0.0 2.6 1.2 Public Safety 1582 1655 1409 1655 2700 2304 3298 5.1 4.1 3.2 4.0 4.6 3.7 CF 1506 1574 1300 1574 2264 2222 3136 4.8 3.7 3.0 3.8 3.8 3.6 HIPC I/ 0 50 40 50 90 41 60 0.0 0.3 0.1 0.1 0.2 0.1 IGF 38 28 62 28 35 35 57 0.1 0.1 0.1 0.1 0.1 0.1 DACF 0 0 0 0 0 0 0 0.0 0.0 0.0 0.0 0.0 0.0 Grants and Loans 38 3 7 3 311 6 45 0.1 0.0 0.0 0.0 0.5 0.0 Other 1578 1192 2848 1012 2565 3684 2433 5.0 3.4 6.5 2.4 4.3 5.9 Utilities + Rev.Agencies- CF 107 423 818 413 896 643 1132 2.3 1.2 1.9 1.o 1.5 1.o Contingency -CF 871 611 1989 599 986 930 540 2.8 1.7 4.5 1.4 1.7 1.5 HIPC 1/ 0 158 41 0 455 1282 761 0.0 0.4 0.1 0.0 0.8 2.1 Grants and Loans(multi- sector, unspecifiedsector) 0 0 0 0 228 828 0 0 0 0 0 0.4 1.3 Sub Total MDA expend. by sector 17797 20098 26030 24195 34878 33598 40597 56.9 57.0 59.5 55.3 58.9 54.2 Transfer to Households @ension+grat+soc. See) 1055 1246 1589 1803 1827 2350 2551 3.4 3.5 3.6 4.3 3.1 3.8 Outatandingcommitm. (Roads and Noo-Roads) 166 160 1117 291 347 488 562 0.5 0.5 2.6 0.7 0.6 0.8 UtilitySubs/other transf. 392 1819 700 1016 1661 3045 407 1.3 5.2 1.6 2.4 2.8 4.9 VAT refunds 126 55 60 117 100 141 126 0.4 0.2 0.1 0.3 0.2 0.2 TOTAL 19537 23378 29494 21428 38813 39622 44242 100.0 100.0 100.0 100.0 100.0 100.0 o/w: CF - Disc. Exp. by MDAs, inc.Util.&R.Ag 10514 10110 12694 12473 18546 17820 19860 53.8 43.2 43.0 45.5 47.8 45.0 &,Contingency llHIPC in2006 Preliminaryand 2007 Budgetincludes MDRI. 21 FollowingDACF allocation guidelines, and recentbudgets andperformance, 15 percent of DACF is allocatedto GeneralAdministration with the remainder split 60:40 between Social Services and Economic Services. Source: 2004-20 App. Acts and Budget Statements. 20048~05Audited Accounts (Cons. Fund), and 2006 UnauditedCAGD Report. 106 ,? m vl Table 12:EducationSector -Expendituresby Programand Source of Funds, 2004-2006 2004 2004 % o f 2005 2005 Yo of 2006 2006 Yo of Actual total Actual total Actual total Programme bn Cedis % bn Cedis % bn Cedis % Pre-school 232 4.0% 250 3.4% 371 3.9% Primary 1,831 31.6% 2,201 29.9% 2,626 27.6% JSS 927 16.0% 1,310 17.8% 1,599 16.8% sss 1,153 19.9% 1,531 20.8% 1,504 15.8% TVET 64 1.1% 88 1.2% 86 0.9% SPED 23 0.4% 29 0.4% 38 0.4% NPED 93 1.6% 140 1.9% 67 0.7% Teacher Education 214 3.7% 287 3.9% 331 3.5% Tertiary 1,217 21.O% 1,443 19.6% 2,146 22.5% Management, Subvented Agenc. 29 0.5% 74 1.O% 734 7.7% HIV-AIDS 12 0.2% 7 0.1% 25 0.3% TOTAL 5,794 100.0% 7,362 100.0% 9,528 100.0% Financed by: GoG 3,918 67.6% 4,856 66.0% 6,483 68.0% Development partners 420 7.3% 619 8.4% 225 2.4% IGFs 528 9.1% 690 9.4% 1,022 10.7% GETF 548 9.5% 716 9.7% 1,152 12.1% HIPC 274 4.7% 313 4.3% 446 4.7% DACF 105 1.8% 86 1.2% 138 1.5% EFA Catalytic 0 0.0% 35 0.5% 28 0.3% SIF 0 0.0% 48 0.6% 34 0.4% Source: MOESS, Education Sector Annual Review, Accra, 2007 Table 13: Health Sector Expendituresby Programand Source of Funds, 2004-2006 - 2004 2004 Yo of 2005 2005 Yo of 2006 2006 Yo of Actual total Actual total Actual total bn Cedis % bn Cedis % bn Cedis % Programmdnstitution level Sub-district level services 193 7.0% 250 7.0% 286 6.0% District-level services 828 30.0% 929 26.0% 1,382 29.0% Regional-level services' 524 19.0% 679 19.0% 810 17.0% Tertiary-level services 441 16.0% 607 17.0% 810 17.0% Management, other 690 25.0% 964 27.0% 1,191 25.0% Subvented organisations 83 3.0% 143 4.0% 286 6.0% TOTAL 2,759 3,572 4,765 Financed by: GoG 1,104 40.0% 1,536 43.O% 2,525 53.0% IGF 33 1 12.0% 429 12.0% 619 13.0% HIPC 166 6.0% 0 0.0% 95 2.0% NHIS 0 0.0% 0 0.0% 238 5.0% Donor HealthFund 662 24.0% 536 15.0% 381 8.0% Programme/project funding 193 7.0% 500 14.0% 429 9.0% Financial Credit 304 11.0% 536 15.0% 429 9.0% Othe? 0 0.0% 36 1.O% 48 1.O% Notes. 1. Includes teaching institutions 2. Unspecified Source: MOH, HealthSector Annual Review, Accra, 2007 109 a $ s9 W a s m 0 3 v 0 3 0 Wm N W Table 15: 2007 Budget and GPRSII Shareof 2007 total Share of Budgeted budgeted fundingsource US$ mn YO % GoG Pvt Sector Competitiveness 432 18.7% 36.0% HumanResourceDevelopment 481 20.9% 40.1% GoodGovernance/Civic Responsibility 286 12.4% 23.8% GoG Sub-total 1,199 52.0% 100.0% External Pvt Sector Competitiveness 573 24.9% 56.8% HumanResourceDevelopment 361 15.7% 35.8% GoodGovernance/Civic Responsibility 75 3.3% 7.4% ExternalSub-total 1,009 43.8% 100.0% Statutory Funds, IGF Pvt Sector Competitiveness 19 0.8% 19.3% HumanResourceDevelopment 64 2.8% 66.3% GoodGovernance/Civic Responsibility 14 0.6% 14.4% Statutory Funds, IGFs Sub-total 97 4.2% 100.0% TOTAL Pvt Sector Competitiveness 1,024 44.4% 44.4% HumanResourceDevelopment 906 39.3% 39.3% Good Governance/Civic Responsibility 375 16.3% 16.3% TOTAL 2,305 100.0% 100.0% Source: NDPC, Ghanaianauthorities, DevelopmentPartners 111 Map section