Document of The World Bank

FOR OFFICIAL USE ONLY

REPORT NO: 54247-GH

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT FOR A PROPOSED CREDIT

IN THE AMOUNT OF SDR 16.5 MILLION (US$25 MILLION EQUIVALENT)

TO

REPUBLIC OF GHANA

FOR A

SECOND AGRICULTURE DEVELOPMENT POLICY OPERATION

May 3, 2010

Sustainable Development Department Agriculture and Rural Development Unit Country Department AFCW1 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

GHANA - GOVERNMENT FISCAL YEAR January 1 – December 31

CURRENCY EQUIVALENTS (Exchange Rate Effective as of 31 March, 2010)

Currency Unit = New Ghana Cedi (Gh¢)

US$ 1.00 Gh¢ 1.42Gh¢ 1.00 US$ 0.70

ABBREVIATION AND ACRONYMS

AAA Accra Agenda for Action AEAs Agricultural Extension Agents AFD Agence Francais Development AfDB African Development Bank AFSAP Agricultural Finance Strategy and Action Plan AgCLIR Commercial, Legal and Institutional Reform Diagnostic of Ghana’s

Agricultural Sector agDPO Agriculture Development Policy Operation agGDP Agricultural GDP AGRA Alliance for a Green Revolution in Africa AU African Union BPEMS Budget and Public Expenditure Management System CAADP Comprehensive African Agriculture Development Program CAGD Controller and Accountant General Department CAS Country Assistance Strategy CEPS Customs, Exercise and Prevention Services CIDA Canadian International Development Agency COCOBOD Cocoa marketing board CSIR Council for Scientific and Industrial Research CY Calendar Year DFID UK’s Department for International Development DP Development Partner DPL Development Policy Loan DRM Disaster Risk Management DSA Debt Sustainability Analysis ECOWAS Economic Community of West African States EDIF Export Development Investment Fund EGPRC Economic Governance and Poverty Reduction Credit EIAs Environmental Impacts Assessments EMBRAPA Brazilian Agricultural Research and Extension Agency EMCBP Economic Management and Capacity Building Project EPA Environmental Protection Agency ERPFM External review of Public Financial Management ESW Economic and Sector Work FAO Food and Agriculture Organization FASDEP Food and Agriculture Sector Development Policy

FBO Farmer Based Organization GIDA Ghana Irrigation Development Authority GIFMIS Ghana Integrated Financial Management Information System GDP Gross Domestic Product GFDRR Global Facility for Disaster Recovery and Reduction GoG Government of Ghana GPHA Ghana Ports and Harbors Authority GPRS Growth and Poverty Reduction Strategy GSSP Governance Strategy Support Program GTZ German Technical Cooperation Agency HEII Horticulture Exports Industry Initiative HIPC Highly indebted Poor Country Initiative HLF High Level Forum IDA International Development Association IFAD International Fund for Agricultural Development IFC International Finance Corporation IFPRI International Food Policy Research Institute IGF Internally generated funds IMF International Monetary Fund IPPC International Plant Protection Convention ISTA International Seed Testing Association JICA Japanese International Cooperation Agency JISM Joint Irrigation Scheme Management JSR Joint Sector Review LEAP Livelihood Empowerment Against Poverty MCC Millennium Challenge Corporation MDA Ministry, Department and Agency MDBS Multi Donor Budget Support MDG Millennium Development Goal MDRI Multilateral Debt Relief Initiative M&E Monitoring and Evaluation MoFA Ministry of Food and Agriculture MoFEP Ministry of Finance and Economic Planning MoFi Ministry of Fisheries MoU Memorandum of Understanding MSME Micro and Small and Medium Enterprises MTEF Medium Term Expenditure Framework NEPAD New Partnership for Africa’s Development NERICA New Rice for Africa NREG Natural Resource and Environmental Governance PEFA Public Expenditure and Financial Accountability PEIR Public Expenditure and Institutional Review PFM Public Financial Management PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PSIA Poverty and Social Impact Assessment RELC Research and Extension Liaison Committee ReSAKSS Regional Strategy Analysis and Knowledge Support System

RAFiP Rural and Agricultural Finance Program SADA Savannah Accelerated Development Authority SDR Special Drawing Rights SLM Sustainable Land Management SWAp Sector-Wide Approach TA Technical Assistance USAID United States Agency for International Development WUA Water Users Association

Vice President:Country Director:

Sector Director:Sector Manager:

Task Team Leader:

Obiageli Katryn Ezekwesili Ishac Diwan Inger Anderson Karen Mcconnell Brooks Christopher Paul Jackson

Ghana SECOND AGRICULTURE DEVELOPMENT POLICY OPERATION

TABLE OF CONTENTS

1. INTRODUCTION 1 2. COUNTRY CONTEXT 2 A. RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS 2 B. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 5 C. TRENDS IN POVERTY AND HUMAN DEVELOPMENT 9 D. RECENT DEVELOPMENTS IN THE AGRICULTURE SECTOR 11 3. THE GOVERNMENT’S AGRICULTURAL PROGRAM 14 A. POLICY CONTEXT 14 B. ON-GOING PRIORITY GOVERNMENT INTERVENTIONS 16 4. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM 22 A. LINK TO CAS 22 B. COLLABORATION WITH THE IMF AND OTHER DONORS 23 C. RELATIONSHIP TO OTHER BANK OPERATIONS 24 D. LESSONS LEARNED 26 E. ANALYTICAL UNDERPINNINGS 28 5. THE PROPOSED GHANA SECOND AGRICULTURE DEVELOPMENT LENDING PROGRAM 29 A. OPERATION DESCRIPTION 29 B. POLICY AREAS TO BE SUPPORTED UNDER THE OPERATION 31 6. OPERATION IMPLEMENTATION 41 A. POVERTY AND SOCIAL IMPACTS 41 B. FIDUCIARY ASPECTS 41 C. IMPLEMENTATION, MONITORING AND EVALUATION 44 D. ENVIRONMENTAL ASPECTS 50 E. RISKS AND MITIGATION 51 ANNEXES 53 ANNEX 1: OBJECTIVES AND EXPECTED OUTCOMES OF FASDEP II 54 ANNEX 2: ON-GOING PRIORITY GOVERNMENT INTERVENTIONS 56 ANNEX 3: LETTER OF DEVELOPMENT POLICY 60 ANNEX 4: IMF ASSESSMENT LETTER 70 MAP 75

The Second Agriculture Development Policy Operation was prepared by a World Bank team consisting of Christopher Jackson (AFTAR, TTL), Martien van Nieuwkoop, Malathi Jayawickrama, Osman Gyasi and Marie-Claudine Fungi (AFTAR), John Frazer Stewart (AFTEN), Sebastien Dessus and Carlos Cavalcanti (AFTP4), Anders Jensen (AFTRL), Franke Toornstra (AFTQK), Rajiv Sondhi (CTRFC), Manush Hristov and Edith Mwenda (LEGAF), John Nyaga, Ismaila Ceesay and Robert DeGraft Hansen (AFTFM), Christine Richaud (OPCCE), and Rose Abena Ampadu and Victoria Bruce-Goga (AFCW1). Overall guidance was provided by Ishac Diwan (Country Director, AFCW1), Karen Mcconnell Brooks (Sector Manager, AFTAR), and Katherine Bain (AFCW1). Peer Reviewers were Derek Byerlee (Consultant, AFTAR), Dina Umali-Deininger (Sector Manager, ECSS1), Stephen Mink (Lead Economist, AFTSN). The World Bank team worked closely with the Government of Ghana’s Ministry of Food and Agriculture, Ministry of Finance and Economic Planning, as well as Development Partners engaged in the support of the agricultural sector.

CREDIT AND PROGRAM SUMMARY

GHANA

SECOND AGRICULTURE DEVELOPMENT POLICY OPERATION

Borrower

Republic Of Ghana

Implementing Agency

Ministry of Food and Agriculture

Financing Data

SDR 16.5 million (US$25 million equivalent)Blend IDA terms: 35 year maturity with a 10-year grace period

Operation Type

DPL series (2nd of 3). It is proposed to terminate the series prematurely with the current operation and begin a new series immediately following Board approval. The new series would be aligned with the CAADP Compact signed 28 October, 2009.

Main Policy Areas

These are: (i) agricultural technology, (ii) irrigation, (iii) farmer organizations, (iv) marine fisheries, (v) land management; and (vii) budget formulation and execution.

Key Outcome Indicators

These are (respectively, according to main policy areas above): (i) the rate of technology adoption, the ratio of post-harvest losses in key crops, and performance of irrigation schemes; (ii) the value of non-traditional agricultural exports; (iii) the number of functioning farmer organizations accessing different types of services; (iv) lodged revenues from fisheries sector (licenses etc); (v) the number of farmers adopting soil and water conservation technologies; and (vi) the budget execution ratio.

Program Development Objective(s) and Contribution to CAS

The operation is consistent with the CAS objective of supporting Ghana’s poverty reduction strategy and in particularly ‘modernizing agriculture’. The justification for the proposed modifications to the operation mid-series are articulated in the draft CAS Progress Report. The program development objective is “to increase the contribution of agriculture to growth and poverty reduction while improving the management of soil and water resources.”

Risks and Risk Mitigation

The main risks are: (i) change in policy direction in response to continued shocks in global food markets; (ii) a challenging fiscal and macroeconomic context; (iii) burgeoning costs of the fertilizer voucher scheme; (iv) continued weakness in public financial management; and (v) delays in completion of the sector wide approach and further advances in harmonization and alignment. Mitigation strategies to address these risks are as follows: confirmation of the Government of their continued commitment to prevailing agricultural policy framework; intense engagement with the IMF on macroeconomic stabilization programs; immediate preparation of the proposed follow-on series and inclusion of fertilizer voucher program in the policy matrix; technical assistance to improved financial management; and active engagement post-CAADP.

Operation ID Number P110147

1

IDA PROGRAM DOCUMENT FOR A PROPOSED SECOND AGRICULTURE DEVELOPMENT POLICY

OPERATION TO GHANA

1. INTRODUCTION

1. The proposed second agricultural development policy operation (AgDPO 2) is a single tranche credit for $25 million equivalent intended to help the Government of Ghana (GoG) implement the revised Food and Agriculture Sector Development Policy (FASDEP II). This operation backs the Bank’s strategy of supporting Ghana’s Growth and Poverty Reduction Strategy (GPRS II), which seeks to modernize agriculture through policy and institutional reforms that deliver the following: (i) the gaps between observed and achievable yields are narrowed, particularly for food crops; (ii) post-harvest losses are reduced; (iii) the irrigated area is increased and informal schemes are better managed; (iv) farmer organizations are empowered to better represent economic interests of their members; (v) the management of Ghana’s fisheries is improved; and (vi) budgetary resources for agriculture are well allocated and executed. The AgDPO 2 is consistent with the Bank’s strategic focus on country systems, and the Government’s draft aid policy that seeks a greater share of foreign assistance in the form of budgetary support. 2. The agricultural policy was approved by Cabinet in July 2007 and was endorsed by the new Government following the elections of December 2008. It constitutes a sector policy that extends beyond the Ministry of Food and Agriculture (MoFA) and encompasses the mandates of all ministries that are expected to contribute to agriculture sector outcomes. The Policy was formulated in a consultative manner, and benefitted from inputs from all stakeholders including development partners (DPs), civil society and the private sector. 3. Ghana recently concluded its Round Table under the Comprehensive African Agricultural Development Program (CAADP). A new Sector Plan (2009 – 2015) is under preparation.1 The CAADP Compact was signed at the Round Table, held in October 2009, by Government, development partners, private sector and civil society, and it commits all stakeholders to renewed collective and individual efforts to support agricultural development. It also provides an enhanced framework for scaling up resources to agriculture – in particular, in line with G20 commitments at l’Aguila and Pittsburgh – and for improved harmonization and alignment. 4. The Bank and Government agree that to better accommodate the Government’s specific implementation priorities moving forward, the Bank will terminate the current series with this operation and immediately begin preparation of a new series. As reflected in the Country Assistance Strategy (CAS) Progress Report, this constitutes a strategic response with the following expected benefits: (i) it allows for

1 For the purposes of consistency with OP8.60, the Sector Plan can be interpreted as a ‘sectoral PRSP’ involving policy reforms and an expenditure program to achieve sector objectives.

2

closer alignment of Bank support with the new Government’s agenda – both in terms of content and in respect of the political cycle; (ii) it provides for a more compelling case to scale up assistance beyond the levels originally envisaged in the CAS, in recognition of the financing gap identified in the newly articulated investment program under the CAADP framework; and (iii) it facilitates a better alignment of more specific policy measures to be supported with the Government’s policy and institutional reform agenda. 5. Sector budget support should be seen in the context of other budget support organized under the Multi-Donor Budget Support (MDBS) framework to which the Bank contributes through the Economic Governance and Poverty Reduction Credit (EGPRC). The EGPRC and the MDBS are not appropriate instruments to deepen the sector level policy dialogue as they necessarily focus on cross-cutting issues including public financial management (PFM) and economic governance. At the same time, the Government is yet to fully address budget needs at the sector level, relying predominantly on DP-financed investment projects. While these investments have contributed to faster agricultural growth and export diversification, a key objective of the current AgDPO series is to strengthen the Government’s ability to plan and implement using its own budgetary resources. This approach is validated by progress to date under AgDPO 1.

2. COUNTRY CONTEXT

6. Ghana is at a critical juncture in its development path. Recent domestic and exogenous shocks as well as structural weaknesses have presented setbacks to an otherwise impressive record of macroeconomic achievements. GoG has embarked on an aggressive program to restore macroeconomic stability; important not only to address immediate challenges but also critical if Ghana is to develop the robust policy and institutional landscape to effectively manage its oil economy (Sections 2.A and 2.B). Macroeconomic balance is essential if the recent gains in poverty reduction wellbeing are to be maintained (as explained in Section 2.C). Moreover, the consequences of macroeconomic instability will be keenly felt by the agricultural sector which has been a driver of overall GDP growth in recent years (as described in Section 2.D).

A. RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS

7. The Government that took office in January 2009 inherited a challenging macro-economic situation, brought on by a series of shocks which exacerbated a structural trend of widening fiscal imbalances. Rapid fiscal expansion in 2008 and the sudden closure of access to international capital markets in September 2008 resulted in a widening current account deficit and a contracting capital account surplus. By end-2008, fiscal and current account deficits, including grants, reached 14.5 percent and 18.7 percent of GDP respectively. While fiscal expansion was not a new phenomenon2 it was exacerbated by a combination of severe exogenous shocks, including floods and droughts in late 2007, a rise in world food prices, which prompted the Government to introduce food tax exemptions, and a rise in oil prices, which led the Government to purchase oil on behalf of utilities, in the absence of effective tariff adjustment mechanisms. The electoral

2 The public sector wage bill increased from 8.5 percent to 11.3 percent of GDP from 2005 to 2008.

3

cycle also contributed to the fiscal expansion. Deficits and demand pressures strongly contributed to the depreciation of the Ghana Cedi, which lost approximately 45 percent of its value against the US dollar in the year to June 2009, and to accelerated consumer price inflation, which reached 20.7 percent in June 2009.

8. In response, the Government immediately adopted a multi-year fiscal stabilization plan to bring down the deficit to 4.5 percent of GDP in 2011. Immediate actions in 2009 sought to restore expenditure control and the 2009 Budget Law approved by Parliament in March 2009 targeted a 9.4 percent fiscal deficit in CY2009. Subsequent structural reforms in the public sector and in energy are intended to stabilize (in 2010) and then reduce (from 2011) the debt to (non-oil) GDP ratio. By focusing on non-oil GDP, targets can be met even if oil revenues, expected to flow in the last quarter of 2010, are delayed. The 2010 Budget Law laid out before Parliament in November 2009 targets a 7.5 percent fiscal deficit in CY2010.

9. The International Monetary Fund (IMF) supports the Government’s fiscal stabilization plan. On July 15, 2009 the IMF Board approved a 3-year arrangement under the Poverty Reduction and Growth Facility (PRGF) for Ghana in an amount of US$600 million to support the government's economic program to tackle macroeconomic imbalances. The IMF acknowledges that the current fiscal deficit will take time to be resolved due to structural rigidities. While substantial up-front adjustment was needed in 2009 to limit the potentially adverse consequences of fiscal imbalances for inflation and public debt, additional measures will still be needed in 2010 and 2011 to bring down the fiscal deficit to sustainable levels. The program is expected to be reviewed by the IMF Board in May/ June 2010.3

10. Through the EGPRC, the Bank has also been supporting structural reforms to restore budget discipline and tackle long-standing public sector and energy issues, while protecting the poor.4 Efforts supported by the EGPRC concentrated on measures to: (i) establish a treasury single account, improve compliance with the public procurement law, correct any budget deviations (fiscal deficit, pro-poor expenditures), publish fiscal accounts, and submit to Parliament the Freedom of Information Bill; (ii) reconstitute the boards of energy-related utilities and regulatory authority, adopt an electricity sector financial recovery plan, adopt legislation on oil and gas regulatory framework and fiscal regime, implement a net hiring freeze in the public sector, eliminate

3 This exercise will be a combined first and second review of the PRGF. 4 EGPRC was approved on June 30, 2009 by the World Bank Board of Executive Directors, for a total amount of US$300 million equivalent to be disbursed in two successive tranches of US$150 million each. The first tranche was disbursed upon effectiveness in July 2009. The Government plans to complete all second tranche release actions in Q3 FY10. By February 2010, prior actions regarding (i) the meeting of fiscal deficit and pro-poor expenditure targets, (ii) the submission of the freedom of information bill to the Parliament, (iii) the classification of pro-poor expenditures were considered met by the World Bank staff, pending receipt of appropriate means of verification. Progress was also significant on the remaining prior actions, that is, the approval by Cabinet of the electricity financial recovery plan and the fiscal and regulatory frameworks for the oil and gas sectors, the elimination of ghost workers from the Ghana Education Service and the classification of Sub-vented Agencies. A Minister of State for Public Sector Reform was appointed and employment audits initiated in all MDAs.

4

ghost workers in health and education services, classify half of sub-vented agencies in preparation for their rationalization, divestiture, or commercialization; and (iii) extend the number of beneficiaries in Ghana’s cash transfer program5 and review the effectiveness of pro-poor expenditures.

Table 1: Selected Economic and Financial Indicators, 2007-12

2007 2008 2009 2010 2011 2012 (Annual percentage change; unless otherwise specified) National accounts and prices Real GDP 5.7 7.3 3.5 4.5 19.9 6.7 Real GDP (non oil) 5.7 7.3 3.5 4.5 5.8 5.9 Real GDP per capita 3.0 4.6 0.9 1.9 16.9 4.0 Consumer price index (annual average) 10.7 16.5 19.3 11.0 8.8 6.0 External sector Exports, f.o.b. (percentage change, in US$) 11.9 26.3 18.4 5.3 47.9 6.5 Imports, f.o.b. (percentage change, in US$) 19.4 27.3 -10.2 14.4 13.4 3.2 Export volume -3.7 7.5 7.1 6.0 8.6 5.7 Import volume 14.6 14.1 4.8 7.5 10.4 1.8 Terms of trade 11.5 5.3 28.9 -6.6 -9.3 -4.9 Ghana Cedis (new) per U.S. dollar (end of period) 0.97 1.21 1.42 .. .. .. Money and credit Net domestic assets 27.8 46.2 -0.5 21.9 21.2 5.8 Real private sector credit (% annual changes) 41.9 25.4 8.2 9.3 21.2 2.5 Broad money (excluding foreign currency deposits) 43.0 31.2 24.9 22.8 33.6 23.4 (Percent of GDP; unless otherwise specified) Investment and saving Gross investment 33.8 35.9 30.1 35.6 33.4 32.2 Private investment 19.5 20.3 17.8 24.0 23.1 21.4 Central government investment 14.4 15.7 12.3 11.6 10.3 10.8 Gross national saving 21.8 17.3 20.2 24.1 26.1 28.2 Private savings 14.1 12.5 14.8 17.9 17.5 18.6 Central government savings 7.7 4.8 5.4 6.2 8.6 9.6 Foreign savings 12.0 18.7 9.9 11.5 7.2 4.0 (Percent of non-oil GDP; unless otherwise specified) Government operations Total revenue and grants 28.8 27.5 27.5 30.8 31.3 32.0 Total expenditure including arrears 38.1 42.0 37.2 38.4 36.7 37.1 Overall balance -9.2 -14.5 -9.7 -7.5 -5.4 -5.2 Net domestic financing 1.3 9.8 4.6 4.8 1.3 0.8 External sector Current account balance (including official transfers) -12.0 -18.7 -9.9 -11.5 -7.2 -4.0 Gross international reserves (millions of US$) 2,837 2,036 3,164 3,414 4,364 6,595 Total donor support (millions of US$) 1,171 1,478 1,649 1,508 1,183 1,386 Memorandum items: Nominal GDP (billions of GHc, including oil) 14.0 17.6 22.0 25.9 33.5 38.1

Source: IMF, February 2010. 11. Since mid-2009, the economy has shown strong signs of stabilization, while weathering the impact of the global financial crisis. Both the fiscal and current account deficits were reduced during 2009, in part because of positive exogenous shocks (high hydroelectric reserves with good rains, lower oil prices, high cocoa and gold prices and a good cocoa harvest) as well as significant progress in fiscal stabilization. The fiscal

5 Known as Livelihood Empowerment Against Poverty (LEAP).

5

deficit fell to 9.7 percent of GDP by end of 2009 (against 11.8 percent a year earlier) while the balance of payments’ current account registered a 9.9 percent of GDP deficit (against 16.6 percent a year earlier). Since July 2009 the exchange rate broadly stabilized against the US$, and the inflation rate started to decelerate to 15.9 percent – close to the Bank of Ghana target of 14.6 percent and within the range agreed with the Fund. By February 2010 6-month Treasury Bills were subscribed at 18.7 percent down from 26.4 percent in February 2009. Real GDP growth decelerated in 2009 to 4 percent compared to 7.3 percent in 2008.6 The banking sector has expanded rapidly (by 25 percent through September 2009) while maintaining strong capital adequacy ratios, although the share of non-performing loans has increased to 14.7 percent in December 2009 (roughly double the previous year’s figure). Poor financial positions of some state owned enterprises is affecting a number of specific banks.7

B. MACRO-ECONOMIC OUTLOOK AND DEBT SUSTAINABILITY

12. By end-2009, the IMF considered Ghana to be on track to meet its medium term fiscal targets. Estimates for end-2009 point to a fiscal deficit marginally above the fiscal target of 9.4 percent set forth in the 2009 Budget. Higher than anticipated domestic interest costs and arrears, and lower than anticipated grants and tax revenue contributed to the slippage. In contrast, primary expenditures were severely compressed (although the share of pro-poor expenditures was protected)8, thereby contributing strongly to fiscal deficit reduction. The Government and the IMF agreed to revise the fiscal deficit target for 2010 upward (from 6.0 percent GDP initially envisaged at the signature of the PRGF, to 7.5 percent), so as to accommodate the continued liquidation of expenditure arrears and outstanding commitments.9,10 Such a revision is also increasing the targeted fiscal

6 GDP estimates are based on indirect indicators of supply and a 15-year old base year - 1993, possibly not reflecting structural economic changes which occurred since. GDP is currently being revised by the Statistical Service with IMF technical assistance using 2004 as the base year. The exercise could entail significant revisions in GDP levels. 7 For instance, Ghana Commercial Bank is particular exposed to the debts of Tema Oil Refinery. While Government initiated a plan to securitize this debt in late-2009 this is yet to be finalized. 8 The share of pro-poor expenditure in total expenditure stood at 26.8 percent by end-September 2009, against 24.9 percent targeted for the full year 2009. In comparison, the share of actual pro-poor expenditure in total expenditure stood at 22.7 percent in 2008 (against 24.5 percent targeted). 9 The review at Parliament in August 2009 of the budget 2009 execution at mid-year revealed a stock of outstanding public expenditure arrears and commitments largely exceeding that budgeted (US$ 1.2 billion or 7.9 percent of GDP, against 2.5 percent budgeted). Such a stock was actually constituted of three different types of commitments, of equal orders or magnitude: first, arrears accumulated in 2008 vis-à-vis various Government funds (social security, district assembly common fund, national health insurance scheme, Ghana education trust fund), as the Authorities fell short of resources to honor their commitments given larger than budgeted wage expenditures; second, claims to cover energy-related losses of state enterprises; and third, off-budget expenditures incurred mostly by the Ministry of Energy, as commitment controls were relaxed to rapidly increase generation capacity following shortages in late 2007. The supplementary budget adopted by Parliament in August 2009 for the remainder of 2009 allowed for raising by 0.4 percent of GDP the appropriation to reimburse arrears. 10 As part of a multi-year stabilization plan, the IMF considers the fiscal deficit target of 7.5 percent of GDP for 2010 financeable. Fiscal and external deficits are financeable with an additional US$100 – 150 million support from the donor community in addition to the funding already planned for program grants and loans (which included US$100 million from the World Bank).

6

deficit target for 2011, at 5.4 percent of non-oil GDP against a previous target of 4.5 percent.

13. Progress in 2010 towards fiscal stabilization is predicated on several important government reforms. While structural reforms in the public energy sector and public financial management are expected to prevent the recurrence of expenditure slippages, most of the fiscal adjustment will stem from additional tax and non tax revenue. Additional revenue will originate from the removal of important tax exemptions, the conversion of excise to ad-valorem taxes (to avoid inflation erosion), increased royalties from the mining sector, higher dividend distribution from state-owned enterprises, and better alignment of user fees with costs. The Fund noted the risk of a shortfall from over-ambitious revenue projections. In response, additional measures have been identified, including the securitization of some arrears that were initially to be repaid in 2010.

Table 2: Central Government Budgetary Operations, 2007-12

2007 2008 2009 2010 2011 2012 (Percent of non-oil GDP) Total revenue and grants 28.8 27.5 27.5 30.8 31.3 32.0 Direct taxes 6.7 7.1 7.8 8.7 11.6 11.6 Indirect taxes 9.3 8.7 7.3 7.5 7.5 7.5 Trade taxes 4.1 4.1 3.5 4.2 4.2 4.2 Nontax revenue 2.6 2.9 3.9 5.3 5.4 5.5 Grants 6.1 4.7 5.0 5.3 2.7 3.2 Total expenditure 38.1 42.0 37.2 38.4 36.7 37.1 Wages and salaries 10.1 11.3 11.4 11.0 11.2 11.2 Goods and services (*) 4.0 3.7 2.8 3.8 3.7 3.7 Subsidies to energy (**) 0.2 1.5 0.3 0.3 0.3 0.3 Transfers 4.1 3.5 2.4 4.1 4.3 4.3 Reserves fund 1.4 1.6 0.8 1.4 1.4 1.4 Domestic debt interest costs 2.3 2.7 3.5 4.0 3.5 2.8 Foreign debt interest costs 0.8 1.1 1.2 1.2 0.8 0.8 Domestically financed capital expenditures 9.2 10.5 4.9 5.7 7.2 8.3 Foreign financed capital expenditures 5.2 5.2 7.4 5.9 3.1 3.3 Arrears clearance and VAT refunds 0.7 1.0 2.5 1.0 1.1 1.0 Primary balance -6.1 -10.7 -5.0 -2.4 -1.1 -1.6 Overall balance -9.2 -14.5 -9.7 -7.5 -5.4 -5.2 Domestic debt 26.4 29.0 27.9 28.5 29.3 28.6 External debt (***) 24.8 27.8 31.1 28.4 29.1 28.2

Source: IMF, February 2010. (*) includes wage allowances category 1 reclassified in 2010 as part of item 1. (**) includes the lifeline program and oil safety nets to protect vulnerable households against energy price variations. (***) does not include savings in oil funds.

14. Successful fiscal stabilization is also predicated on positive GDP growth. Budget computations for 2010 are based on real GDP growth of 5 percent – 6 percent11 which is dependent on a number of optimistic assumptions such as continued high export demand and prices12 and good rains. Following the sharp reduction of investments in

11 MoFEP plans on a 6.5 percent real GDP growth, while the IMF retains 5 percent. Nominal GDP growth assumptions are nevertheless the same, given different GDP deflator assumptions. 12 Terms of trade are forecast to worsen in 2010 (-11 percent), under the influence of rising oil prices. Export prices (gold, cocoa), if declining, are nevertheless expected to remain high in the central scenario, at

7

2009 there is a risk that growth could be constrained in 2010 through supply side effects. By mid-2009, the output gap was estimated close to nil by the IMF, emphasizing the lack of excess productive capacity. Under a low case scenario characterized by a less favorable external and climatic environment, GDP growth could fall to 3 percent – 4 percent.

15. The Government strategy is subject to risks. Successful negotiations with the unions to secure a within-budget public wage increase and a gradual implementation of the ‘single spine’ reform13 are far from guaranteed. The recurrence of energy subsidies to the industrial sector in particular14 is possible and measures to significantly increase tax and non tax revenue may fall short of targets. Should one of these risks materialize, additional fiscal adjustment would be needed, possibly through greater compression of domestically-financed investment. This would call for a rapid reform of the earmarked funds which finance most domestic capital expenditures in order to grant greater discretion and flexibility to fiscal policy15 and/ or speedier disbursement of project loans and grants, which would substitute for domestically financed investment projects to sustain growth. Other options could include increased taxation on petroleum products, capital gains or windfall taxes, and delayed payments on non essential items.16

16. The implementation of the Government’s economic stabilization and reform program should minimize risks of external debt distress. The joint IDA-IMF debt sustainability analysis (DSA) of July 7, 2009, assessed Ghana as remaining at a moderate risk of debt distress, in spite of the large fiscal deficit in 2008 and consequent increase in debt to GDP ratio. Indeed, while the starting point for the debt projections was less favorable than in 2008, the combination of a more ambitious fiscal consolidation with a greater insurance that oil production will start in late 2010 (and thus its inclusion in the baseline scenario) contributed to a more favorable baseline than in 2008. Public sector net debt (accounting for oil wealth saved in initial years of extraction) is projected to fall to less than 40 percent of GDP by the end of the projection period (2029), down from 60 percent – 70 percent in 2008. However, failure to reduce the primary deficit from 2009 levels would be associated with a near doubling of the debt to GDP ratio over two their 2008 level. Between 2004 and 2009, export prices grew by 67 percent, and were at their highest in 2009. 13 The reform aims at unifying salary scales across the various public sector entities. Since it is not intended to negatively affect anyone’s salary, the implementation of the reform could be fiscally expensive. 100 million Ghana Cedi was budgeted in 2010 to start its implementation, to be completed over a five-year period. 14 The possible resumption of aluminum smelting operations at the state-owned VALCO would necessarily entail large fiscal costs given that production is viable only with extremely cheap electricity, much below marginal or average costs. Besides, the exclusion in the electricity financial recovery plan of large electricity tariffs for the mining sector (currently subsidized through cheap electricity) could also endanger the recovery of the sector at large, given the need in the alternative to substantially raise residential tariffs, which might prove to be politically difficult. 15 The sum of statutory funds (National Health Insurance Scheme, Social Security, Ghana Education Trust Fund, Road Fund, District Assembly Common Fund, HPIC and MDRI related funds) the wage bill, pensions and debt service constituted 80 percent of domestically financed expenditures in 2009. 16 The reserves fund provisions for likely expenditure, such as judgment debt, some of which could possibly be postponed.

8

decades. The debt sustainability analysis also underlines the need for continued improvement in the business climate and prudent management of Ghana’s oil revenues, given the critical importance of strong growth in the non-oil sector for debt sustainability.

17. Debt sustainability is also predicated on prudent non-concessional borrowing. Following the issuance of US$750 million worth of Eurobonds in 2007 (to finance additional electricity capacity and road networks), Ghana borrowed the equivalent of US$458 million in 2008 to finance projects for rural electrification, electricity capacity, housing and health. These projects are believed to carry important development benefits, although lack of quantitative information precludes rigorous assessment of their economic and social returns. The non-concessional borrowing policy note distributed to the Board of Executive Directors in January 2010 recommended that (i) IDA continue to provide Ghana its full IDA allocation on blend terms in FY2010 and (ii) the policy should be reviewed before any new lending in FY2011.17 The PRGF includes a US$300 million annual ceiling for non-concessional borrowing acknowledging its relevance to financing projects related to oil and gas.

Macro-Economic Outlook, Agriculture and the Potential Impacts of Oil

18. As Ghana seeks to benefit from the discovery of off-shore oil reserves, measures will be needed to channel revenues into productive investments to mitigate potential Dutch disease effects. Competitiveness will decline with real exchange rate appreciation resulting from macroeconomic impacts of oil economy – as observed elsewhere in the world. A recent World Bank assessment18 suggests that poor management of oil revenues could push Ghana’s long-term growth path below the non-oil baseline trajectory, with long-term per capita growth of 2.3 percent compared to 3.4 percent for the baseline. (The model assumes existing distortions remain – freeing these up would allow faster spending without such strong real exchange rate effects.) Under this adverse scenario, by 2039 per capita incomes would be 20 percent lower than otherwise. Investing a high proportion of oil revenues in productive investments will help mitigate downside impacts by off-setting appreciation through productivity gains.

19. Declining agricultural output and exports are a very real possibility. At the peak of oil production in 2015 the model predicts that farm exports would suffer a reduction of between 5.5 percent – 6.5 percent and that aggregate agricultural output would fall by 1.0 percent – 1.2 percent compared to the base case. Cocoa would particularly suffer although the nascent horticultural sector would also be adversely affected as Ghana’s competitiveness is severely compromised. In addition, the combination of increased demand associated with the boom and long-term economic

17 The recommendation is based on the following factors: (i) market conditions have changed fundamentally; (ii) additional external financing sought by the Ghanaian authorities aimed at supporting ongoing development projects is needed to sustain economic growth and assist in meeting the MDGs; (iii) a graduated response permits time to assess developments as they unfold, including projected oil exports beginning in 2011; and (iv) there are benefits associated with IDA’s continued full engagement with this country as it makes sectoral policy choices and builds up its own capacity to evaluate the expected returns on its public investments. 18 See “Economy-Wide Impact of Oil Discovery in Ghana”, World Bank (2009), Report No. 47321-GH

9

decline of the non-oil sectors would imply significant redistributive consequences and increased inequality. For example, a 10 percent appreciation is associated with a decline in incomes of export farmers of 3 percent compared to a 0.6 percent increase in incomes for public sector employees. Interestingly, this analysis suggests a small gain to food crop farmers; however this is predicated on food crops remaining largely untradeable which, given further improvements in transport infrastructure and more efficient value chains, is unlikely.

20. Sound fiscal management (for instance through a permanent income fund) would provide additional resources for public investment of $458 million per year which could be used in the agricultural sector. Sound investments of oil revenues would reduce consumption expenditures (that are the major driver of real exchange rate appreciation) while also funding public investments with the largest contribution to productivity improvements. It is noteworthy that this sum is roughly equivalent to average aid receipts over the last 5 years. Careful selection of the most appropriate investments with the greatest productivity-enhancing pay-offs will be important. Measures to close the yield gap (see below) would be a strong candidate since their impact, given available technologies, could be reasonably rapid (compared to technical innovation which has a long lag).

C. TRENDS IN POVERTY AND HUMAN DEVELOPMENT

21. Ghana recorded very significant poverty reduction between 1999 and 2006. The estimated proportion of the poor in the total population went down from 39 percent in 1999 to 29 percent in 2006.19 While all major regions recorded reductions in poverty, some achieved them much more rapidly than others with the result that 86 percent of Ghana’s poor now reside in rural areas. The bulk of poverty is concentrated in the three northern regions which now comprise more than half of the poor (against a fourth of Ghana’s population). There is substantial opportunity cost of lagging regions in terms of foregone national GDP growth: had the northern regions grown at the same rate as the national average in the seven years through 2004, national per capita incomes would have been 5 percent higher.20 Inequality has increased with a Gini coefficient of 0.423 (2004/05) compared to 0.373 in 1991/92, and is now similar to Nigeria and Thailand.21 Efforts to address the special needs of these lagging regions have been initiated in the recent past, and there are ongoing efforts to amplify them in the context of an ambitious Savanna Accelerated Development Initiative which is supported by several DPs including the Bank. (See Box 1.)

22. Since 2006, various factors have affected poverty positively and negatively, complicating the aggregate assessment. Per capita real consumption grew by almost 30 percent, which, if equally shared across households, should have generated substantial

19 Poverty rates are computed using the national poverty line. Estimates using the international poverty line of US$1.25 a day put the poverty rate at 30 percent in 2006, down from 39 percent in 1999. 20 Economic Growth in Northern Ghana, ODI and CEPA, 2005. 21 According to the latest World Development Indicators, the Gini coefficients for Nigeria and Thailand are 0.429 (2003/04) and 0.425 (2004) respectively.

10

poverty reduction gains (assuming unchanged distribution, the headcount index would have approached 20 percent). However, important uncertainties regarding the measurement of private consumption and its distribution among households and regions, and the fact that some recent shocks might have disproportionally affected the poor (droughts and floods in the Northern regions, food price increases in cities) could mean lower realized reduction in poverty.

Box 1: The Sustainable Development Initiative for the Northern Savannah

Addressing the challenges of Ghana’s Northern parts – an increasingly lagging region that does not have the development benefits enjoyed elsewhere – is an important policy priority of the Government, and has obvious implications for agricultural spending. Following the floods of 2007, the Office of the President launched the Northern Development Initiative and established a Task Force to propose strategies for developing Northern Ghana. This Task Force, made up of eminent persons from economic and political think tanks, academia and civil society (with a strong representation from Northern groups) proposed: (i) a specific development strategy for the North based on existing natural resource endowments (ii) the establishment of a Northern Development Fund to secure specific financing for such a strategy; and (iii) an Authority to oversee these efforts and coordinate other actors. An Act establishing the Fund was passed by Parliament in November 2008.

The new Government has reiterated its commitment to advancing this agenda, and has expanded the initiative from the three regions of the North (Northern Region, Upper East and Upper West) to cover the entire Guinea Savannah agro-ecological zone (which includes the northern Districts of Brong Ahafo, Volta Region and Eastern Region). The Savannah Accelerated Development Authority (SADA) is being constituted to oversee implementation of the Strategy and the Act will be revised accordingly; an updated Sustainable Development Initiative for the Northern Savannah with a twenty-year horizon (2010 – 2030) is being finalized. Critical institutional issues of interface between the SADA and existing line ministries, fiscal authority (for fund raising and expenditure controls) and governance structures will need to be resolved. Clearly, the outcome of these deliberations and subsequent adoption by Government will have a significant bearing on MoFA and existing institutions responsible for the agricultural sector. These are currently uncertain, and further policy dialogue is required to establish clear institutional responsibility for delivery of the Agricultural Policy. An initial allocation to SADA of Gh¢25million was made from the FY2010 Budget.

23. In 2010 income poverty could rise further, as per capita growth in private consumption is expected to fall. Planned fiscal adjustment, such as increased cost recovery in the energy sector and increased taxation, is expected to result in stagnant aggregate per capita real private consumption in 2010, which would increase income poverty in the absence of changes in income distribution. This underlines the importance of protecting vulnerable households from the downturn in economic activity through targeted measures, such as a further extension of the cash transfer program (Livelihood Empowerment Against Poverty [LEAP]) to new beneficiaries and the protection of pro-poor public expenditures as the budget contracts. The Government’s recent review of existing social protection mechanisms identifies LEAP as the best targeted available instrument for reaching the poor,22 even if implementation costs remain. On the other hand, tax exemptions for consumer goods and services (food imports, electricity, petroleum) or inputs (diesel) mostly benefit the non-poor.

22 World Bank staff calculations suggest that with 60 percent of its beneficiaries below the poverty line, LEAP has the highest targeting efficiency among Ghana’s social programs and subsidies.

11

24. Progress towards the Millennium Development Goals (MDGs) depicts a picture of quick gains but with some notable exceptions. The income poverty, hunger, completion rates for primary schooling, gender parity at school and access to water goals (MDG1a, MDG1b, MDG2, MDG3 and MDG7a respectively) are on track.23 Service provision has been extended to millions of poor people in the past decade, and protecting these gains must be a key priority. At the same time, other important MDGs, such as sanitation (MDG7b), child (MDG4) and maternal mortality24 (MDG5) are still off-track and require more effort. While progress on health-related MDGs would need to rely mostly on efficiency gains (and goals may need to be revisited)25 a case can be made to raise resources allocated to sanitation.26

Figure 1: Ghana’s Progress and Prospects Vary Widely Across MDGs

Source: World Development Indicators and Ghanaian Authorities. Note: (*) or most recent available year.

D. RECENT DEVELOPMENTS IN THE AGRICULTURAL SECTOR

25. Agriculture has driven Ghana’s aggregate economic growth in recent years, and remains the economy’s backbone and the primary livelihood for the majority of the population (of 22.5 million), especially the poorest. Agricultural GDP (AgGDP),

23 When at least two observations are available after 1990, with a sufficient number of years separating them, the World Bank determines whether a country is on or off track to meet a given MDG by 2015. To do so, it compares the progress recorded so far with that needed to reach the MDG, under the assumption that progress becomes increasingly difficult the closer countries get to the goal. Technically, this is equivalent to comparing the annual growth rate between 1990 and today with the constant growth rate required to reach the MDG in 2015 from the situation in 1990. 24 Given the difficulty to estimate and monitor on a regular basis maternal mortality, an input indicator – birth attendance by skilled health staff – is retained for measuring progress. In 2007, the maternal mortality rate was estimated at 451 deaths per 100,000 live births. 25 See Global Monitoring Report 2009, World Bank, Washington D.C. 26 See A Sourcebook for Poverty Reduction Strategies, 2002, World Bank, Washington D.C.

0% 20% 40% 60% 80% 100% 120%

MDG1a: Income poverty

MDG1b: Hunger

MDG2: Primary education

MDG3: Gender parity at school

MDG4: Child mortality

MDG5: Maternal mortality

MDG7a: Access to safe water

MDG7b: Access to sanitation

Distance to goal achieved by 2008(*) Distance to goal to be achieved by 2008(*) to be on track

12

which accounts for almost 40 percent of the economy, grew by 4.3 percent in 2007 and 5.1 percent in 2008, with provisional outlook for 2009 indicating an increase of 5.7 percent (Table 3).27 Continued liberalization of the sector has been the main driver of growth.28 In the early 1980s nominal rates of assistance were estimated to be -21 percent (i.e. net taxation of the sector). By the early 2000’s (2000 – 04) average taxation across all commodities had fallen to 1.4 percent. While the main exportable sector – cocoa – during this recent period continued to be heavily taxed (implicit rates of -20 percent) import-competing and other important food crops benefitted from substantial protection. (Rice and maize benefit from a nominal assistance of +31 percent and +39 percent respectively). Thus although the aggregate rate of taxation had fallen between the 1980s and mid 2000s, significant differences in treatment of exportables and import substitutes remained. The removal of import tariffs on food grains in response to the 2008 spike in global food prices undoubtedly reduced the protection of import substitutes, although quantification is not yet updated.

Table 3: GDP Growth Rates 2007 – 2009

2007 2008* 2009** GDP at factor cost 6.5 7.4 6.1 Agriculture 4.3 5.1 5.7 Crops & livestock 4.0 5.8 6.5 Cocoa production & marketing 6.5 5.0 3.5 Forestry and logging 2.5 3.5 3.5 Fishing 5.0 3.0 5.0

Industry 7.4 8.1 5.9 Services 8.2 9.3 6.6

Source: MoFEP 2010 Budget Statement. * provisional. ** projection. 26. In rural Ghana, poverty remains high in areas where the production of food staples dominates. Poverty is higher and more extreme in the lagging regions of Northern Ghana characterized by Guinea Savannah agro-ecological conditions. Poverty rates in the Northern Region, Upper East and Upper West regions are 52 percent, 70 percent and 88 percent respectively, and these regions account for almost half of Ghana’s poor.29 Farming is the primary economic activity in these locations. The poverty rate of 46 percent among food crop farmers (nationally) is the highest among all occupational economic groups, compared, for instance, to a rate of 8 percent among public sector workers. Other locations in central and southern Ghana enjoy greater potential for diversification into export crops (e.g. horticulture and cocoa). Poverty rates among export crop farmers have fallen from 64 percent in 1991/92 to 24 percent in 2004/05, illustrating

27 Ghana’s national statistics are currently being revised, with technical assistance from the IMF. In particular, the national accounts are currently based on 1993. A 2004 Supply and Use Table is now available and includes more updated and comprehensive sources. The IMF has recommended to the Ghana Statistical Service that this new Supply and Use Table forms the basis for benchmarking national accounts in the future. See Appendix III, Ghana: Statistical Issues 2008 Article IV Consultation (IMF Country Report No. 08/344) for further details. 28 See Anderson and Masters (eds) Distortions to Agricultural Incentives in Africa, World bank, 2009. 29 Poverty and Trends of Poverty in Ghana 1991 – 2006; Ghana Statistical Service, 2007.

13

that opportunities for improved livelihoods are available. Taking advantage of these opportunities, however, requires a set of household attributes and environmental factors (e.g. the availability of services) that are not always available to all smallholders.

27. Ghana is reasonably food secure at the national level although household food insecurity is a concern in certain regions. Significant food imports are rice (almost half a million tonnes costing $600 million in 2009) and poultry with imports of 88,000mt in 2008 (twice the 2006 figure). Ghana does not face significant food deficits and enjoys surpluses in certain commodities (see Table 4). However, in the Northern, Upper East and Upper West, 10 percent, 15 percent and 34 percent of the respective households are currently food insecure.30 Vulnerability to food insecurity is also observed in other regions such as Ashanti and Brong Ahafo.

Table 4: Food Balance Sheet, 2007 – 2008

Commodity Maximum production

Food available for human consumption

Total Supply

Food Demand

Surplus (+ve)/ Deficit (-ve)

Maize 1,219.6 969.6 1,038.0 998.6 39.40 Rice (paddy) 185.3 -- -- -- -- Rice (milled) -- 111.2 111.2 600.0 -488.80 Millet 113.0 90.4 90.4 145.9 -55.50 Sorghum 154.8 123.8 123.8 230.3 -106.50 Cassava 10,217.9 8,174.3 8,174.3 3,486.0 4,688.30 Yam 4,375.9 3,938.3 3,938.3 955.3 2,983.00 Plantain 3,233.7 3,072.0 3,072.0 1,933.4 1,138.60 Cocoyam 1,690.1 1,512.1 1,521.1 1,301.9 219.20 Source: MoFA. Data in 1,000mt. 28. The recent food and fuel price crises did not affect Ghana as badly as they did other African countries, as gains in cocoa and gold partly off-set losses elsewhere.31 Cocoa prices doubled in a year to over $3,000 per mt in mid-2008 and remain at these levels. Nevertheless, local food prices did rise and remain high, in part due to a poor second cropping season in 2008 in Southern Ghana. The prices of agricultural inputs also increased with urea prices peaking at around $800 per mt in April 2008 compared to about $240 a year later. Global food prices have subsided somewhat with rice now trading at around $500 per mt compared to over $1000 per mt in April 2008.32 29. The food price increase weakened the terms of trade of many food-deficit households.33 Previously, one days’ labor provided wages sufficient to purchase 7kg of maize in the Northern Region and 9.6kg in the Upper West. In October 2008, these household terms of trade fell to 3.5kg and 5.6kg respectively. However, existing production and consumption patterns suggest that the impact on overall poverty rates is

30 Ghana Comprehensive Food security and Nutrition Survey, WFP, 2009. 31 See IMF (2008), “Food and Fuel Prices – Recent Developments”, Macroeconomic Impact and Policy Responses and analysis by DEC. 32 Thai rice, 5 percent broken. Data from World Bank Global Economic Monitor and FAO. 33 Data reported by the MoFA/ WFP food security monitoring system.

14

somewhat muted as most poor households are self-sufficient.34 For instance, a 25 percent increase in cereal prices is predicted to increase the headcount poverty rate from 28.5 percent to 29.2 percent, a small jump given a substantial price change (although this analysis excluded impacts of the financial crisis which is likely to have lowered incomes including from remittances).

3. THE GOVERNMENT’S AGRICULTURAL PROGRAM

30. Given the importance of agriculture as a source of employment and livelihoods, especially for Ghana’s poor, agriculture features prominently in Government’s policies and programs. ‘Modernizing Agriculture’ is a key pillar of the GPRS II and is likely to feature prominently in the successor (the Medium Term National Development Policy Framework). Given future prospects – and in particular oil – setting clear objectives and achieving outcomes for agricultural development are increasingly pressing. This section sets out the overarching policy environment in particular under the CAADP (Section 3.A) and key existing government interventions (Section 3.B) focusing on the response to the 2008 food price crisis and the fertilizer voucher scheme, fisheries reform, and public expenditure management in the sector.

A. POLICY CONTEXT

31. FASDEP II provides overall policy direction under six broad headings: (i) food security and emergency preparedness; (ii) improved growth in incomes; (iii) increased competitiveness and enhanced integration into domestic and international markets; (iv) sustainable management of land and environment; (v) science and technology applied to food security and agricultural development; and (vi) effective institutional coordination. The key objectives and outcomes are summarized in Annex 1. These are consistent with the four ‘pillars’ of CAADP35 as supported by the African Union (AU) and the New Partnership for Africa’s Development (NEPAD).

32. FASDEP II is a Government strategy and it explicitly recognizes the collective efforts across Ministries that are required to achieve sectoral outcomes. Cabinet endorsement is an important facet which promotes better coordination within Government recognizing that investments of many ministries and agencies contribute to sectoral outcomes. One weakness of FASDEP II, however, is that responsibility for the cocoa remains with the cocoa marketing agency (COCOBOD) under the oversight of MoFEP thereby undermining efforts at intra-Governmental coordination; a process to revise the cocoa sector strategy has been underway although there is currently no clear time frame for bringing this to a close.

34 Comparing the Impact of Food and Energy Price Shocks on Consumers: A Social Accounting Matrix Analysis for Ghana, World Bank Policy research Working Paper 4741, 2008. 35 CAADP is organized along the following four pillars: (i) Extending the area under sustainable land management and reliable water control systems; (ii) Improving rural infrastructure and trade-related capacities for market access; (iii) Increasing food supply and reducing hunger; and (iv) Agricultural research, technology dissemination and adoption.

15

33. The Policy articulates an appropriate dual role for government to (i) foster an enabling policy and regulatory environment to encourage supporting private sector investments and (ii) provide priority investments and services where justified on the grounds of market failure, because they are public goods (or services) or because of equity concerns. It stresses the importance of transformation towards a modernized agricultural sector – a theme carried over from the GPRS II – based on a diagnostic of key constraints that has been validated through extensive stakeholder dialogue.

34. The basic policy direction is set and unchanged. The new Government, however, is refining the implementation priorities motivated by its own specific agenda and in response to latest global developments. These will be presented in the new Sector Plan covering the period 2010 – 2015. Consequently, beyond the current agreed reform program supported by the Bank, the Government’s detailed policy and institutional agenda remains to be fully articulated. Government has set out an agenda of immediate follow-up to the CAADP Round Table to complete the Sector Plan and translate implementation priorities into a fully-costed investment program. The Sector Plan also entails deepening donor harmonization and progress towards sector wide approach (SWAp).

Progress in CAADP

35. Ghana is participating actively in the CAADP process and completed the Round Table on October 27 – 28, 2009. Completion of the Sector Plan and finalization of a fully-costed investment program are now the priorities. The signing of the Compact was the culmination of an extensive consultative process and involved private sector, civil society, donors (the Bank signed in its capacity as chair of the Agricultural Sector Working Group) and a number of critical line ministries including MoFA, and MoFEP. The Compact commits signatories to step-up support for the sector and to improve coordination and harmonization in development efforts.

36. As part of its commitment to CAADP, GoG is increasing budgetary allocations to the sector. The Compact reaffirms Government’s commitment to the pledge under the Maputo Declaration.36 While GoG has been reporting allocations to the AU/ NEPAD, there is no full consensus on what constitutes sector expenditure and a baseline is required to effectively monitor progress.37 The narrowest definition is spending by MoFA which amounts to less than 2 percent of public spending. If spending on rural roads (under the Ministry of Transport) and agricultural research (under Ministry of Science and Technology) are added the ratio increases to about 4 percent – 5 percent. This is increased further to about 9 percent if expenditures by COCOBOD are added. It should be noted however that the latter does not constitute public expenditure according 36 The Maputo Declaration, made by African leaders in the context of the AU Summit in 2003, calls for 10 percent of national budgets to be allocated to agriculture sector with the aim of achieving 6 percent annual growth and 5 percent annual labor productivity growth in the sector. 37 An effort is underway in Ghana to (i) agree at a technical level how to account for multi-use expenditures that contribute to agriculture sector outcomes (such as spending on rural roads); and (ii) confirm these protocols within the budget guidelines to promote their consistent application to monitor progress against the Maputo Declaration.

16

to the IMF’s definitions.38 The recently approved Budget indicates budgetary allocations to MoFA will increase from less than 2 percent in recent years to 2.5 percent in FY2010 and 3.20 percent in FY2011. 39 (Figures for spending across the sector are not available.)

B. ON-GOING PRIORITY GOVERNMENT INTERVENTIONS

37. Improving small-holder productivity remains the focus of Government efforts to modernize agriculture. Yield gaps – the difference between typical observed yields and potential yields in well-run farms – are significant, ranging from 20 percent – 60 percent conservatively measured (Table 5). Analysis suggests that closing the yield gaps will increase agGDP growth to 6 percent by 2015.40 But this implies significant scaling up of annual productivity growth: yields of maize would need to increase annually by 6.1 percent compared to the 3.8 percent trend. This requires concerted efforts across the extension services. An improved extension system is also needed if Ghana is to adapt well to climate change through application of new technologies.41

38. Several strategies are required to close the productivity gap: (1) ensuring existing technology is effectively disseminated to, and adopted by, farmers; (2) creating marketing incentives for farmers to invest in productivity improvements; (3) organizing farmers to better function in increasingly complex agricultural value chains; and (4) expanding the coverage of irrigated agriculture.

39. The main thrusts of existing Government programs include the following:

Collaboration between agricultural extension agents (AEAs), farmers and research staff of the Council for Scientific and Industrial Research (CSIR) is organized through Research and Extension Liaison Committees (RELCs) to determine the nation’s research agenda;

‘Block farms’ and ‘one acre demonstration plots’ are used to demonstrate the merits of new technology for surrounding farmers and to provide direct support for beneficiaries;

MoFA and MoFEP are collaborating on new approaches to agricultural finance which might include reforming the existing Export Development Investment Fund (EDIF) to include agricultural projects;

MoFA is reforming its extension services beyond a production focus to include down-stream elements of the value chain beyond the farm gate, and in particular measures to reduce post-harvest losses;

38 As laid down in the Government Financial Statistics. 39 This excludes MDA expenditure financed by internally generated funds (IGFs), debt relief (HIPC and MDRI) and donor funding including budget support, which is accounted for separately in Ghana’s chart of accounts. 40 Agriculture for Development in Ghana: New Opportunities and Challenges, IFPRI (2008). 41 Ghana is one of the country case studies in the Bank’s global assessment on the Economics of Adaptation to Climate Change. The case study analysis is identifying a set of technically feasible technologies but it presumes a capacity to ensure these are adopted.

17

MoFA is restructuring and increasing its support for farmer-based organizations (FBOs) to strengthen their ability to act jointly in agricultural value chains; and

Ghana Irrigation Development Authority (GIDA) currently focuses its support on the 22 large-scale formal irrigation schemes and MoFA is realigning GIDA to be more effective in supporting the management of small-scale informal schemes by water users associations (WUAs);

Complementary efforts are under way to promote sustainable land management (SLM) technologies as a core element of extension services – together with improved irrigation management address climate change; and

Ongoing programs to support the recovery of the pineapple industry complement measures to strengthen links between large-scale producers and surrounding out-growers.

More detail on existing Government programs is provided in Annex 2.

Table 5: Yield Gap for Selected Agricultural Commodities (mt)

Crop Observed Yields Achievable Yields Yield Gap Yield Gap (%) Maize 1.5 2.5 1.0 40% Rice – rainfed 2.1 3.5 1.4 40% Rice – irrigated 2.8 5.0 2.2 44% Millet 0.8 1.5 0.7 47% Sorghum 1.0 1.5 0.5 33% Cassava 11.9 28.0 16.1 58% Groundnut 0.8 1.0 0.2 20% Pineapple 60.0 100.0 40.0 40% Yam 12.4 20.0 7.6 38% Cocoa 0.4 1.0 0.6 60% Oil Palm 12.0 15.0 3.0 20% Source: Agriculture for Development in Ghana: New Opportunities and Challenges, IFPRI, 2008 Table 6. Government’s Response to Global Trends in Food Prices

40. Although Ghana is self sufficient across key food staples, the global food price crisis posed a threat to many households and presented an opportunity to reinvigorate efforts to achieve existing agricultural development objectives such as productivity improvements and efficiencies in the value chain. Consequently, the Government outlined a program of short-term measures including: (i) trade policy measures to restrict food exports to neighboring countries and suspension of import tariffs on food staples; (ii) initiatives to substitute cassava flour for costly wheat imports in the local baking industry; (iii) intensive efforts to increase adoption of higher yielding varieties of key staples, in particular NERICA42 rice varieties; and (iv) a program to mitigate the high fertilizer prices and thereby promote fertilizer use.

41. In practice, the Government is focusing on delivering inputs to increase productivity – especially the fertilizer subsidy. This reflects pragmatism on the part of

42 New Rice for Africa.

18

the Ministry and a focus on results as well as desire to maintain flexibility in the approach to respond to changing circumstances. Short term responses included the distribution of essential inputs such as seeds and tools with the support of key development partners, in particular the Food and Agriculture Organization (FAO). In some instances such inputs were provided on credit, but as often observed, repayment rates have been low. In designing the public works program, MoFA's priority was to rehabilitate the dams destroyed by the 2007 floods. GIDA promoted the use of labor intensive methods by the contractors. In parallel, Government recognized the potential of public works as part of the national social safety net infrastructure and has requested Bank support for a program to enhance productive safety nets.

Results of the Fertilizer Voucher Scheme

42. A central pillar of Government’s response to the food price crisis is the introduction of vouchers to mitigate fertilizer price rises. Recognized strengths of the program are: (i) the lead of the private sector and the Government’s non-interference in the distribution of subsidized fertilizers; (ii) the freedom of farmers to decide from which store to purchase fertilizers, compared to the previous system of distribution by para-statals; and (iii) the decision to exclude the most commonly utilized type of fertilizer in the cocoa subsector from the subsidy program, thereby ensuring adequate targeting of the program towards the food grain subsector. The scheme seems to be having an impact: in 2008 the three northern regions exhibited significant production increases in key staples compared to the five-year average. Apparent weaknesses of the subsidy program include: (i) lack of an explicit beneficiary targeting mechanism; (ii) lack of observance of a strict cap on the maximum number of vouchers per beneficiary; (iii) heavy involvement of fertilizer importers in the implementation of the program, thereby excluding independent dealers from participating in the program; and (iv) poor communications resulting in the practice of dealers not selling fertilizers to farmers without a voucher. Furthermore, absence of a tie between the fertilizer program and efforts to increase the supply of improved seeds to farmers is a missed opportunity.

43. Although global fertilizer prices have softened, the Government has continued the voucher scheme in 2009 and plans to extend it through 2015. Prices remained high when the 2009 program was finalized. Currently prices of phosphate fertilizers remain above historic levels and while the price of urea has fallen back to its 2005/06 level, it remains highly sensitive to crude oil prices, which over the medium-to-long term are expected to remain significantly higher than the historic average. Accordingly, if the original aim was to prevent reduction in the use of fertilizers due to high prices, the intention now appears to be to stimulate its use. Since resource-poor farmers have limited access to credit, there is indeed scope to provide an alternative rationale for the fertilizer subsidy program. However, this alternative rationale should be explicitly reflected in the design and operational rules of the envisaged program in 2010. More concretely:

A more explicit targeting mechanism should distinguish between long-term users of fertilizers (for whom the subsidy is simply a monetary payment) and those farmers without a track record of fertilizer use (for whom the subsidy stimulates

19

change in technology). District councils and other relevant local government bodies should be active in the identification of eligible farmers;

The fertilizer response rate should be raised by incorporating improved seed supply efforts into the program;

Subsidies per eligible beneficiary should be clearly capped to contain costs;

All legitimate input dealers should be included in the program to facilitate deepening of the fertilizer market. This can be achieved by organizing the redemption of vouchers through commercial banks rather than through fertilizer importers as currently is the case; and

A credible exit strategy should be announced to manage expectations of farmers, input dealers and fertilizer importers.

44. Synergies between fertilizer use and improved planting material and in particular improved seeds should be enhanced. Typically a greater impact can be achieved from interventions that provide both seeds and fertilizer than interventions supporting either in isolation. Providing improved seeds to match the area to be treated with subsidized fertilizer would cost an incremental $5.5million (assuming maize production only for the sake of simplicity). Consideration should be given to expanding the voucher scheme to promote improved inputs more broadly and not just fertilizer. Interventions to support the demand side of the local seed market and measures on the supply side including the new seed law (as well as assistance for seed growers under the program funded by the Alliance for a Green Revolution in Africa [AGRA]), which would be mutually reinforcing).

45. A National Fertilizer Symposium is planned to address these issues, to provide a forum for stakeholder consultation and to propose a set of protocols for continued implementation of the program. This will build on three important reviews have been undertaken: an assessment of the modalities of the program by the International Food Policy Research Institute (IFPRI), a small survey of beneficiaries sponsored by the Peasant Farmers Association of Ghana, and an internal workshop among MoFA staff involved in the program. Each has raised a number of concerns over the efficiency and efficacy of the program, with proposals for refinement. At an estimated cost of $30 million for FY2009, this program constitutes the largest single program of MoFA. Efficient targeting and a clear exit strategy are required to contain costs of the program, and measures to increase its impact should be adopted.

Fisheries Management

46. Fishing is a major source of income for households along Ghana’s 550km coastline as well as communities around Lake Volta43 and spillovers with ancillary

43 Data from the GLSS IV (2005/06) reveals that communities on the coast derive 40 percent - 50 percent of their incomes from fishing, while for those on the Volta these figures are as high as 75 percent - 80 percent.

20

activities are also significant.44 Yet the policy framework for both inland freshwater fishing, including aquaculture, and the management of Ghana’s substantial off-shore resources is poorly developed. Currently Ghana fails to realize the full benefit of its fisheries natural resources while simultaneously suffering from over-exploitation and an unsustainable catch.45 A fuel subsidy for the artisanal fleet costs the Government about $10million per year and adds to over-fishing.

47. Previously responsibility lay with both the Ministry of Fisheries (MoFi) and the Fisheries Commission. Confusion in the accountability between these two bodies prevented the implementation of MoFi’s Aquaculture Strategic Framework (2006). Clarification was required with regard to the roles and responsibilities of MoFi and the Fisheries Commission, and this was largely accomplished by the abolition of MoFi by the new Government, and the transfer of policy responsibility to a department in MoFA. The Fisheries Commission is the superior authority for strategic policy making in the sector and should be well placed to lead future reforms. Following approval of the Fisheries Policy, the Government requested Bank experts to assess the magnitude of the challenge and quantify the benefits of improved management to guide implementation. An options paper has been submitted to Government for their review, and continued support from the Bank and other donors will follow once a decision is made on the preferred way forward.

Public Expenditure in the Agricultural Sector

48. Increased sectoral spending must be accompanied by improvements in expenditure management to ensure that incremental resources are well spent. As part of the MDBS assessment process, Ghana undertakes an annual external review of public financial management (ERPFM)46 which highlights areas of weakness in generic PFM systems. In addition, MoFA recently concluded its own Public Expenditure and Institutional Review (PEIR) of the sector.47 While the system is sufficiently robust for successful implementation of a budget support instrument, a number of areas for improvement could increase the impact of resources flowing through governmental systems. Of particular concern is the failure of the three year rolling medium term expenditure framework (MTEF) to properly function as a budgeting, planning and expenditure control instrument – manifesting most clearly in aspirational outer-year projections far in excess of first-year approved budgets. MoFA has estimated the financing needs to achieve the objectives contained in FASDEP II for the next three years – annual requirements are more than double the allocations for FY2009. Not all programs

44 Estimates are that the fishing industry provides livelihoods for 1 – 2 million fishermen, processors and traders, including 200,000 marine and inland fishermen and 500 public servants responsible for fishing-related policy and services. 45 There is extensive media coverage of so-called ‘pair trawling’ by commercial vessels. Many of these are allegedly foreign vessels, who do not respect prevailing regulation on catch size and limits. 46 This Review applies the established framework of the Public Expenditure and Financial Accountability (PEFA) Assessment. 47 Public Expenditure and Institutional Review: Ghana’s Ministry of Food and Agriculture, IFPRI (2009).

21

are fully accounted for.48 Table 6 is based on the presentation to the FY2010 Budget hearing: total requests are around Gh¢600 million while the 2009 allocation was Gh¢290 million – including donor funds. On the one hand, this is indicative of an obvious funding gap that could be filled with additional resources. At the same time, a scale-up is unlikely to completely address the funding gap and there is no established and robust prioritization by which the most important projects will secure funding first.

Table 6: MoFA Medium Term Expenditure Framework for 2010 – 2012 (Gh¢ million)

FASDEP II Objective

Total Salaries

and Admin-istration

Objective 1 Food security

and emergency preparedness

Objective 2 Improved growth in incomes

Objective 3 Increased

competitiveness

Objective 4 Sustainable

land management

Objective 5 Science

and technology

Objective 6 Enhanced

institutional coordination

2009* 36.76 51.50 85.88 0.31 9.57 6.17 13.30 202.63 2010* 50.80 80.76 66.95 0.24 19.02 1.62 37.48 256.87 2011 59.75 365.48 84.67 3.34 22.46 5.02 67.40 608.12 2012 73.33 448.55 103.66 4.10 27.58 6.22 81.34 744.78

Source: MoFA. (*) denotes actual budget figures. 49. Management of internally generated funds is an important element of expenditure management particularly for a number of agencies under MoFA’s responsibility. However, as noted in the EGPRC, the Controller and Account General Department (CAGD) adopts a narrow interpretation of the 2003 Financial Administration Act and excludes expenditures from internally generated funds – i.e. revenues earned by agencies for services provided – from the consolidated financial reports. The extent to which revenues can be retained by the agencies (instead of being transferred to the Treasury) generates incentives for additional revenue-raising. The Fisheries Directorate, for instance, is largely funded through receipts. The Veterinary Services Department, in contrast, retains about 25 percent of revenues while the Animal Production Unit must lodge all its revenues with MoFEP. Internally generated funds are particularly important in the formal irrigation sector, with the large schemes able to charge and keep user fees. This presents an opportunity for a wider strategic review of prospects for cost-recovery among those parts of MoFA providing essentially private goods and services where at least part-payment for services provided could be feasible.

50. MoFA is implementing measures to improve the effectiveness with which current resources are deployed. A number of defunct committees have been reconvened, including the Budget Committee, the Internal Audit Committee, the Procurement Committee and the Estates Committee. Similarly, although not one of the pilot ministries, MoFA has installed a terminal of the Budget and Public Expenditure Management System (BPEMS) on its own initiative and requested MoFEP to be connected to the national infrastructure to improve budget and expenditure control.

48 For instance, the fertilizer voucher program is not funded under MoFA’s allocation but from MoFEP contingency. While this was understandable in the first year of operation – it was, after all, an emergency response mid-year – if the program is to continue it needs to be properly budgeted and accounted for.

22

Further technical assistance to roll out the follow-on proposed Ghana Integrated Financial Management and Information System is being provided by the Government of Japan.

51. Two major assessments (the general ERPFM and the MoFA-specific PEIR) conclude that MoFA will benefit from systemic improvements in financial management. Some common issues were more severe in MoFA compared to other agencies and departments. For example, delayed release of payments for extension activities bound by the agricultural cycle are quite damaging, as are staff costs that crowd out resources for operation and investment. The PEIR reported a number of sector- and/ or ministry-specific challenges. Some of these are second generation issues that derive from promising reforms: for instance, district level planning is commendable but annual district budgeting must be cognizant of budget ceilings and the implied required prioritization. Other recommendations include applying greater rigor to existing procedures such as scrutiny over procurement. MoFA is implementing a number of these reforms and has set out an action plan in response to the PEIR. Notable priority measures include: strengthening decentralized planning by rolling out the pilots of integrated planning of district assemblies and the district agricultural departments; the development of a communication strategy for intra- and inter-ministerial communication; commissioning of a review of the effectiveness of various extension modalities; and preparation and maintenance of a database of MoFA staff at national and district levels.

4. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM

A. LINK TO THE CAS

52. The AgDPO 2 remains consistent with the CAS as well as the Ghana Joint Assistance Strategy, and supports the Bank’s commitment to harmonization, as stated in the Paris Declaration on Aid Effectiveness and, more recently, the Accra Agenda for Action (AAA). Similarly, the AgDPO helps to implement the Africa Action Plan in four of the eight focus areas: (i) strengthening the African private sector; (ii) increasing the economic empowerment of women; (iii) building skills for competitiveness in the global economy; and (iv) raising agricultural productivity. The AgDPO is part of the Bank’s action plan to scale up agriculture in Africa and support the Government’s efforts to establish policies to drive agricultural growth.

53. The proposed operation (SDR 16.5 million; $25 million equivalent) is larger than anticipated in the CAS. AgDPO 1 was augmented in response to global events not foreseen in the CAS – i.e. the dramatic increase in food and fertilizer prices. Although prices have eased since their peaks of mid-2008, overall global conditions are likely to remain challenging, with medium-term food prices expected to remain above their historic trends, and certain fertilizer prices expected to remain high. The rationale for scaling-up remains applicable to the current operation.

54. Whereas the CAS envisaged a series of three operations, the AgDPO 2 would be the last of the current series with a new series to follow immediately thereafter. This revised strategy, described in the draft CAS Progress Report reflects changing external and internal factors. Specifically:

23

A new series provides greater flexibility and opportunities for harmonization in the post-CAADP roundtable context;

Confirming a set of policy actions for AgDPO 3 would be premature since details of the policy framework will be elaborated in conjunction with the new Sector Plan under preparation. Discussion of support for specific future policy measures is deferred until preparation of the first operation of the next series; and

The experience with the current series illustrates the challenge of maintaining a deep policy dialogue across an electoral period. A new series beginning in mid CY2010 would better align the operation with Ghana’s electoral cycle.

B. COLLABORATION WITH THE IMF AND OTHER DONORS

55. Donor coordination in Ghana was launched through the Comprehensive Development Framework in 1999. Coordination has deepened in accordance with the Paris Declaration and, more recently, the AAA endorsed at the Third High Level Forum (HLF) on Aid Effectiveness held in Ghana in September 2008. The Bank is active in the Agriculture Sector Group. Membership includes all the donors active in the sector, including the International Fund for Agricultural Development (IFAD), Canadian International Development Agency (CIDA)49, the German agency for technical cooperation (GTZ), the African Development Bank (AfDB), the French development agency (AFD), USAID, the Millennium Challenge Corporation (MCC), and the Japanese International Cooperation Agency. It includes non-traditional donors too, such as AGRA (with a large Ghana program and regional office in Accra) and the Brazilian agricultural research and extension agency (EMBRAPA) which manages a program of south-south cooperation.

56. The CAADP Compact, signed by the Bank on behalf of all DPs, has strengthened the framework for donor collaboration, and includes commitments to enhance the impact of development assistance. In addition, all DPs signed a secondary memorandum of understanding (MoU) to indicate clear support among individual DPs for the commitments embodied in the Compact. Two additional donors not actively engaged in the sector but supportive of sector objectives through their contributions to the MDBS (the European Commission and UK’s Department for International Development [DFID]) also signed the MoU. As part of post-Compact Action Plan, MoFA and development partners will intensify efforts to conclude the SWAp (and, potentially, pooled funding under the next AgDPO).

57. The MoFA-DP Joint Sector Review (JSR), the next of which is scheduled for May 2010, is an example of effective coordination. The first JSR was held in June 2008, and six teams reviewed specific sectoral outcomes. A second JSR, in June 2009, built on the previous year’s experience and recommended critical reforms, many of

49 CIDA provides sector budget support of CAN$100 million over 2009 – 13 with annual base and performance payments (75 percent and 25 percent respectively) contingent on meeting ‘trigger-targets’. Through its Contribution Arrangement with MoFEP, CIDA funds flow through GoG channels using existing GoG policies and procedures, but funds are allocated to MoFA

24

which are now being acted upon. The JSR is an integral element of a SWAp and reduces the transaction costs of individual DP assessments by combining them into a single exercise. These collective assessments also facilitate a consensus on sectoral performance involving all DPs and the Government, and allow concerns to be highlighted jointly, avoiding fragmentation among donors. The next Review will follow upon production of MoFA’s Annual Progress Report, including the monitoring and evaluation (M&E) report for 2009. It is anticipated that the 2010 JSR would also comprise the assessment of the performance tranche for CIDA’s budget support operation and identification for the proposed successor AgDPO series.

58. The AgDPO continues to depend on analytical insights through economic and sector work (ESW) supported by the Bank and other DPs. The Bank works closely with USAID and particularly their Governance Strategy Support Program (GSSP), which is implemented by IFPRI. Coordinated knowledge generation is also a key theme under CAADP, with the proposed continuation of a Regional Strategy Analysis and Knowledge Support System (ReSAKSS). As an interim step, MoFA has proposed a research committee of senior managers, academics and DPs to better match analytical work with their own priorities, improve the quality of knowledge, and to avoid duplication of effort.

59. The AgDPO also relates to the MDBS, which provides co-financed general budget support. GoG and DPs have agreed on a framework memorandum to guide the relationship between sector budget support operations and general budget support. This has been effective in limiting cross-conditionality and in identifying policy issues best dealt with through the sectoral operations or policy dialogue and those appropriate to be ‘elevated’ to the MDBS arena. Efforts are underway to improve the coordination between the sector working groups and the MDBS working group to improve coordination between sectoral instruments and the MDBS.

C. RELATIONSHIP TO OTHER BANK OPERATIONS

60. AgDPO 1 described the links with existing Bank operations including: (i) the West Africa Agricultural Productivity Program (the allocation for Ghana is $15 million) which is now being scaled up and expanded to Burkina faso, Nigeria and Cote d’Ivoire; (ii) the Land Administration Project (IDA’s contribution is $20.5m against a total project costs $55m) which closes in FY2011; a successor project is currently under preparation); and (iii) the Community Based Rural Development Project ($30 million IDA; €10m from AFD) due to close in FY2010.

61. The Bank also has two complementary budget support operations, as previously mentioned: the $300m EGPRC (which follows from previous series of Poverty Reduction Support Credits) and the Natural Resources and Environmental Governance (NREG) DPO series (FY2009 – FY2011). The EGPRC and the MDBS architecture will remain key instruments to motivate cross-cutting policy and institutional changes. On June 30, 2009, the Board approved a second NREG operation, and the third and final operation in the series is currently under preparation. There will be no cross-conditionality between the NREG, AgDPO and the EGPRC. As before, two sector DPOs (i.e. NREG and AgDPO) will continue to rely on macroeconomic assessments and debt

25

sustainability analysis carried out under the EGPRC. Dialogue between the two teams on expenditure frameworks, budget allocations, and budget execution was strengthened under AgDPO I. Closer collaboration on public financial management matters will continue, and it is intended to broaden the scope of the future ERPFMs to complement sector-level budget analysis. Policy measures within the proposed EGPRC 2 may include agricultural issues, and the teams will ensure complementarity between the two, recognizing the continued value of sector-DPLs.

Ongoing Operations: An Update

62. Since the approval of AgDPO I, the Rural Finance Strengthening Project (funded by IDA [$5.13 million], IFAD [$10.12 million] and AfDB [$5.01million]) has closed with an IEG rating of ‘moderately satisfactory’. Elements of the outstanding rural finance agenda are being carried forward primarily by IFAD under their new Rural and Agricultural Finance program (RAFiP; approved by IFAD in December 2008), which is based on the Agricultural Finance Strategy and Action Plan (AFSAP). IFAD has requested the Bank to continue assistance to rural and agricultural finance, although the current CAS did not foresee a follow-on operation. The Bank is currently seeking ways to better deploy project activities under the existing Micro and Small and Medium Enterprises (MSME) project ($118.95 million of which IDA finances $45.0million, the International Finance Corporation [IFC] $40.0 million, GoG $1.90 million and the private sector $32.0 million), and the Economic Management and Capacity Building Project (EMCBP; $35.0 million, with $20.0 million from IDA for the financial sector reform).

63. Both MSME and EMCBP include support to new product development in the financial services sector, and technical assistance for actors in value chains and business associations. These components will be utilized to promote innovative financial services for farmers including, for instance, financing for out-grower schemes and weather index insurance. Similarly, strengthening registered FBOs to act as business entities to procure and deliver services for their members and to negotiate with input and output dealers will be addressed through support for value chain actors and for business associations.

64. In addition, five new major operations have been approved or are under preparation that are relevant for the purpose of AgDPO 2:

65. The Ghana Transport Sector Project (P102000, $225 million) was approved in FY2009, and supports implementation of Ghana’s Transport Sector Development Programme. This project includes a component for $50.5million to finance the rehabilitation of rural/feeder roads, and will establish a structured process for identifying feeder roads to be rehabilitated, giving priority to commercial agricultural potential.

66. The West Africa Regional Fisheries Program includes nine coastal countries from Mauritania to Ghana. The Program is implemented through a series of operations, each targeting a different group of countries. The first operation includes Cape Verde, Liberia, Senegal and Sierra Leone, and is scheduled to start at the beginning of CY2010. The second operation is scheduled to start in CY2011, and would include Ghana. The investments in Ghana would likely focus on strengthened governance and management of

26

fishery resources, as well as investments to reduce illegal fishing and increase local value added to fish products and will support the fisheries policy dialogue.

67. A proposed operation to scale-up existing trust-funded TA for disaster risk management (DRM) financed under the Global Facility for Disaster Recovery and Reduction (GFDRR). Support from the Facility is likely to be scaled up significantly to $5 million, to provide TA and capacity building to better integrate disaster management and climate change. A joint disaster management and climate change mission involving the Bank, the United Nations Development Program and DFID developed a proposal, which is currently under review by the GFDRR Steering Committee.

68. A proposed operation to support investments in commercial agriculture. This operation, programmed for $100 million, would improve the policy environment, including investment promotion measures and measures to enhance access to land for investors, with necessary safeguards. It would have a geographical focus with direct help to develop specific areas through key public infrastructure and public-private partnerships. The IFC will be part of the design team to reflect roles of the World Bank Group and to ensure the resulting IDA-financed operation leverages as much private sector investment as possible.

69. The Opportunities to the Poor Project would strengthen the capacity of vulnerable rural households and communities in the poorest regions of Ghana to move towards improved self-reliance and help to shield themselves against external shocks through cash-for-work and conditional cash transfer programs. The employment generating activities of the project would focus on the construction of productive rural infrastructure, with a potential to generate secondary employment and support local development. The cash transfer program would support scaling up the on-going Government supported LEAP, and improve targeting and efficiency of the program management.

70. The three operations concentrated in the lagging Northern regions of Ghana carry potential for transformative investments and well-coordinated technical assistance operations to complement the policy reforms at the core of the AgDPO. An on-going poverty assessment, which is expected to be completed in early-2010, should provide critical analytical insights to assist the design of these projects.

D. LESSONS LEARNED

71. Foremost among lessons reflected in the design of the overall DPO series50 is the need to focus on the national budgeting and planning process linking the sectoral ministries more firmly to the national processes. Improvements in this area through more sophisticated budget negotiations are emerging, although confirmation of the evidence will require a longer cycle of observation. AgDPO 1 has certainly placed more emphasis on national budgeting processes, evidenced by MoFA’s commissioning of the PEIR,

50 It should be noted this series is the first agricultural development policy operation in Africa.

27

which provides a number of recommendations for improvements in budgeting and planning and extends beyond issues of PFM to include human resource management.

72. Second, improvements in PFM and wider institutional reforms are inextricably linked. Notwithstanding additional factors external to the sector now making reforms more difficult,51 indications are of a strong appetite to ensure that MoFA and its agencies are ‘fit for purpose’. The AgDPO series provides focus to a merged process of policy dialogue, sequential and iterative technical assistance to inform management decisions, with diagnostic exercises guiding management responses. Partners have positioned their assistance to support a Government reform program expressed in the AgDPO agenda.

73. Third, the AgDPO has encouraged development partners to focus on overall sector outcomes instead of or in addition to narrow project performance. The JSRs have proved to be effective instruments in this regard. Indeed, strengthening adherence to SWAp principles was a key objective of the decision to initiate sector budget support.

74. A fourth lesson is the challenge of maintaining a DPO series across election cycles. The first operation noted the risks associated with the election. The slow-down in policy momentum was exaggerated by the change in political orientation of the new administration. At the same time, the AgDPO proved a useful instrument for highlighting policy priorities to the incoming team. With the new Government now setting out an ambitious program for their four-year term, there is an opportunity for sustained partnership benefitting from reduced political uncertainty over the medium term.

75. Fifth, the link between sector budget support operations and general budget support as provided under the Bank’s EGPRC has been strengthened. The MDBS structure and the policy framework are being reviewed. One critical aspect of the review is the relationship between the sector budget support instruments and the MDBS structure, with recognition that adjustments are required to improve the synergies between the two. One specific area for improvement is the extent to which the ERPFM contributes to advancing the PFM dialogue at the sector level.

76. A final lesson concerns efforts to harmonize diagnostic and analytical work. Many studies have been done in and on Ghana’s agriculture, and yet policy makers still find themselves without easy access to quality analytical work. Many studies are funded by individual projects. The absence of a central repository limits dissemination and application of findings. Work is duplicated and, without widely accepted quality standards, of mixed value. With few funds and limited capacity for analytical work within Government, MoFA’s priority areas are often under-resourced. To address this, the program will support improved coordination of analytical work. MoFA has agreed to establish a mechanism for quality assuring research in the sector.

51 For instance, the abolition by the new Government of the Ministry of Public Sector Reform.

28

E. ANALYTICAL UNDERPINNINGS

77. A compelling body of literature positions agriculture as a current and future driver of economic growth and poverty reduction in Ghana. For instance, the 2007 Country Economic Memorandum and studies by IFPRI based on their computable general equilibrium model identify the significant potential for agricultural growth by closing existing yield gaps as well as additional opportunities for value addition. These studies also confirm the wider literature on the substantial poverty reducing impact of such growth. Analysis on the returns to public financing of agriculture interventions shows that for Ghana to reach middle income status by 2015 with current returns to public investment, agricultural spending would need to increase at 20 percent per year.52 At the same time, the PEIR and ERPFM reports present challenges in expenditure management and recommendations for improvements. Bank analysis of the impact of the oil economy has added to the urgency of improving the performance of agriculture53 as well as the potential fiscal space created by sustainable management of revenues.

78. The program draws from these studies and other specific assessments to inform the specific measures to be supported. For instance, the USAID-funded AgCLIR diagnostic,54 (which adopts a similar approach to the Bank’s Doing Business Survey) identified measures to increase private investment in agriculture including measures to strengthen links with out-growers. This reinforced previous analytical work that identified the important contribution to be played by FBOs55 in part as a conduit for pluralistic extension service delivery funded by the Extension Development Fund56. Similarly, an assessment of the scale of post-harvest losses57 provided quantitative data on the costs of product degradation but also the fact that in terms of remedial measures one size does not fit all – i.e. that the cause and extent of losses differs across commodities and between value chains.58 A study to evaluate the effectiveness of technology transfer from research and extension services to small-holders was commissioned by MoFA but failed to meet quality standards and is being redone. FAO assessments59 document the failure of past efforts at expanding irrigation schemes and in particular the institutional challenges to sustainable management, noting that management by users is associated with better irrigation performance and the resulting increased incomes benefit all household members.60 Recent analytical work by the Bank 52 Reaching Middle Income Status in Ghana by 2015: Public Expenditures and Agricultural Growth, IFPRI (2008) 53 Economy-Wide Impact of Oil Discovery in Ghana, World Bank Report No. 47321-GH. 54 AgCLIR Ghana: Commercial, legal and Institutional Reform Diagnostic of Ghana’s Agricultural Sector, USAID (2008). 55 Agricord Study (2008). 56 Study on the Impact of the Extension Development Fund, GreenWeb Consult (2008). 57 For instance, 60 percent of main-season mango production is lost (almost half of this due to poor storage at the market). Losses for cereals are much lower, at about 6 percent – 18 percent, with much of this during harvesting operations. Loss rates for vegetables (between 10 percent – 20 percent) are attributed particularly to damage during transport. 58 Harvest and Post Harvest Baseline Study, Department of Agricultural Economics and Agribusiness, University of Ghana (2008). 59 Most recently summarized in an FAO Mission Report, June 2008. 60 Treadle Pump Irrigation and Poverty in Ghana, IWMI (2007).

29

has highlighted the threats to Ghana’s marine fisheries and the urgent need for improved management of the fishing fleet.61

79. Several assessments of the initial implementation of the fertilizer voucher program (in 2008) identified a number of areas for improvement, while also reflecting the differing positions among stakeholders. Three reviews have been undertaken, in ascending order of analytical rigor: (i) a one-day workshop among MoFA staff produced an internal report for management; (ii) a study commissioned by the Peasant Farmers Association of Ghana62 was based on interviews in five Districts; and (iii) a comprehensive description of the operation of the 2008 scheme published by IFPRI63 (to be followed up by a second assessment examining outcomes to be completed in early 2010). While all the assessments commend the initiative as innovative public-private collaboration, they also cite anecdotal evidence of leakages and perverse outcomes inconsistent with the intended objectives. The efficiency of targeting is of key concern: The internal MoFA review argues that the administration costs of overseeing the targeting is too high and therefore recommends a universal subsidy applicable at the point of import. The IFPRI analysis identifies some displacement of prior fertilizer purchases and argues that the absence of clear protocols in voucher distribution allowed for applying unforeseen procedures that are likely to undermine the program objectives. These analytical insights together with feedback from the current (2009) application are helping MoFA refine the program for next year.

80. The forthcoming Poverty Assessment will focus on spatial development and the lagging regions of Northern Ghana. This is expected to be completed in early-2010 and will focus on the livelihood opportunities available in the north. It will address the question that previous analytical work has identified;64 namely, the growth potential of the region, including the large under-utilized land areas amenable to large-scale agriculture and the prospects from regional markets in the Sahel.

5. THE PROPOSED GHANA SECOND AGRICULTURE DEVELOPMENT LENDING PROGRAM

A. OPERATION DESCRIPTION

81. The foregoing presentation of the macroeconomic and sectoral contexts introduces AgDPO 2 as an instrument to reinforce the same development objectives as AgDPO 1 within a somewhat changed environment. The objective remains to increase the contribution of agriculture to growth and poverty reduction while improving the management of soil and water resources. The operation will build on the measures supported under AgDPO 1 in the six themes of the Agricultural Policy. Broadening the sources of agricultural growth beyond the cocoa subsector into critical food crops and

61 Revitalizing the Ghanaian Fisheries Sector for Wealth and Sustainability, mimeo, World Bank (2009) 62 Assessing the Effectiveness and Efficiency of the Coupon System of Distribution of Fertilizer to Peasant farmers, Ghartey Associated (2009). 63 Operational Details of the 2008 Fertilizer Subsidy in Ghana: preliminary Report, IFPRI (2009). 64 Economic Growth in Northern Ghana, ODI and CEPA, 2005.

30

high-value export crops, while shifting from area expansion to enhanced (land and labor) productivity is vital to further accelerating the 5.7 percent growth rate observed in 2009. Further, Ghana’s competiveness in the non-oil sectors has to be strengthened, given the threats of Dutch Disease associated with the advent of revenues from oil.

82. The policy framework is truncated with the set of prior actions for AgDPO 2, as set out in Section 5.B, to allow alignment of future actions with the policies and investments that the new government is undertaking under the CAADP process. Once confirmed by Government, this priority program will provide the policy anchor to the proposed subsequent series.

Readiness for the DPL

83. As reported in Chapter 2, Ghana’s macro-economic framework is assessed as adequate for the purpose of the proposed operation. The fiscal stabilization objectives set forth in the 2010 Budget, the nature and pace of actions taken by the new Government to regain control of the fiscal situation on a sustainable basis and the complementary financial assistance from the IMF provide the macroeconomic framework for the proposed operation to meet its objectives, and justifies the use of IDA resources. The performance targets of the IMF’s program have been met. The recently presented 2010 Budget is consistent with the agreed macroeconomic framework.

Achievements since AgDPO 1

84. Agricultural GDP growth of 5.1 percent in 2008 and 5.7 percent in 2009 indicates strong sector performance. Attribution is not argued since AgDPO 1 only disbursed in August 2008; nevertheless, Government’s overall approach guided by its Agricultural Policy and performance suggests that the broad policy thrust remains appropriate.

85. The electoral transition dominated the period since AgDPO 1 approval, and the previous administration launched only a few major policy initiatives in its last four months. Progress was limited to technical and administrative measures that, while less than major reform initiatives, are nevertheless important steps towards program objectives. Among them are the following:

The conclusion of the first two rounds of the fertilizer voucher scheme, discussed extensively elsewhere in this document;

A well-developed collaboration between MoFA and MoFEP on the emerging proposals for measures to increase access to agricultural credit;

Re-integration of MoFi into MoFA, the establishing of the Fisheries Commission and the launch of a major reform of fisheries sector governance;

Agreement between MoFA, Ghana Ports and Harbors Authority (GPHA) and the horticulture industry on the management arrangements for the cold storage facility at Tema Port (known as Shed 9);

31

The launch of a registration process by MoFA to identify existing FBOs and as a necessary precursor for a needs assessment on how best to support their improved function;

Continued attention on PFM issues in relation to (i) dialogue with MoFEP on the appropriate accounting for sector allocations versus MoFA’s budget as per the Maputo commitment; and (ii) within MoFA, management buy-in for diagnostic work to seek constraints to improved budgeting and planning; and

Completion of the Sector Plan, the CAADP Round Table and the signing of the CAADP Compact as important vehicles for articulating sector strategies and resource needs, and securing support from stake-holders.

B. POLICY AREAS TO BE SUPPORTED UNDER THE OPERATION

86. The priority policy areas to be supported under AgDPO 2 have been confirmed with the Government. Table 7 presents the prior actions for AgDPO2 consistent with the objectives of the Agricultural Policy.

87. Increasing the productivity of small-holder farms, a particular challenge in the northern area: Studies show substantial yield gaps between those achievable even with prevailing technology and those actually realized by farmers. Why do farmers use particular technologies? How effective are Ghana’s agriculture extension services and the institutional arrangements for technology dissemination? These are fundamental questions that need to be addressed in order to close the existing yield gaps. Further, given the dominance of one-acre demonstration plots as the primary mechanism for technology dissemination, it is critical to review the effectiveness of such modalities. An assessment of the effectiveness of existing mechanisms for technology adoption is therefore an agreed prior action. Although MoFA commissioned and received such an assessment, the analysis did not meet MoFA’s quality standards and failed to provide robust analytical conclusions and policy recommendations. Consequently, MoFA has commissioned a second assessment, expected to be completed in late CY2010.

88. Reducing post-harvest losses: The recommendations from a recent diagnostic assessment of the extent of post-harvest losses (see paragraph 78) include: (i) measures to better connect front-line extension staff with traders so that the quality and handling requirements of the market can be better articulated to farmers; and (ii) increasing the emphasis on modern mitigation measures such as cold chains by promoting public-private partnerships in cold storage facilities. In addition, sector monitoring needs to be expanded to update post-harvest loss data, and monitor the effectiveness of these measures. MoFA needs to include these recommendations in its annual work plans and ensure that resources are allocated to put them into action. A prior action is for these recommendations to be included in the sector plan for 2010 – 2015. This prior action has been met.

89. Promoting FBOs, as many challenges facing smallholders especially in the horticulture sector can be effectively overcome with collective action: Government will submit the Cooperative Bill to Parliament as a prior action to provide a sound and transparent legislative foundation for FBOs to operate as business entities. This critical

32

action has not been met because of the hiatus of new legislation imposed in the run-up to the December 2008 elections. The new Government sought a review of all pending legislation prior to onward submission. The Bill has now been submitted to Cabinet by the Minister of Employment and Social Welfare and is awaiting onward submission to Parliament. Similarly, the legislative framework should be supplemented with an institutional framework that formalizes the role of farmers’ groups and their associated organizations. Establishing a database of outgrowers is a prior action for two reasons: (i) it is a key step in enhancing traceability of agricultural produce that is particularly important in the horticulture sector; and (ii) a central registry and database will facilitate out-grower arrangements by reducing the transaction costs to commercial (nucleus) farms of identifying potential participants of such schemes. This prior action has been completed.

90. Continuing strategic public investments in large-scale infrastructure to encourage private investment in agriculture: State intervention will focus on policy and institutional reforms to strengthen the enabling environment (such as the out-grower database, above). In specific cases, however, publicly funded infrastructure is necessary in facilities where their scale and operation exceed the capabilities of an individual firm, i.e. the case of the refrigerated fruit terminal at Shed 9. Although Shed 9 will continue to be a public asset, the operation of the facility should be run on a commercial basis. A long-term solution would imply concessioning the facility to an independent operator; in the meantime however experience is required to ensure appropriate pricing as well as a period of demonstration in order to convince horticulture farmers to shift from reefer containers to the use of reefer vessels. Consequently, Government will finalize an interim management arrangement for Shed 9 among the industry, MoFA and GPHA to provide for the independent commercial operation of the facility for 12 months while the modalities of a long-term arrangement are identified. This has been met.

91. Ensuring that interventions to boost agricultural productivity are environmentally sound: This requires due diligence by Government, and subjecting key sector policies to ex ante environmental assessment. Moreover, to be practical, Advisory Notes are required from the Environmental Protection Agency (EPA) to guide the day-to-day implementation of the policy objectives. Therefore, a prior action is to complete an environmental assessment of FASDEP II. This has been met.

92. Expanding irrigated agriculture due to the prevailing agro-ecological conditions and the likely effects of climate change: The Government’s program departs from previous approaches by giving greater responsibility to water users or beneficiaries to manage water resources, operate and maintain schemes and improve performance. The approach is centered on Joint Irrigation Scheme Management (JISM) that defines the roles and responsibilities of users and GIDA as the technical supporting agency. Operational procedures are required to put the new Irrigation Policy into effect. First, an implementation schedule for the roll-out of collaborative management arrangements between GIDA and water users associations is needed. Second, an inventory of all informal schemes is required in order to rationalize the expanded coverage and to provide a baseline of the number and performance of existing schemes. Both prior actions have been met.

33

93. Supporting the Government’s efforts to expand credit to agriculture: The Government has recognized that the supply of and demand for credit is essentially a private sector activity, and has taken steps to understand the perspectives of all stake-holders on the constraints to increasing access to and utilization of agricultural credit. A major change in the institutional approach is the active participation by MoFA and MoFEP in the development of the AFSAP, which constitutes a multi-stakeholder strategy for increasing agricultural credit. Government’s participation in AFSAP alongside other stakeholders is both a strength and a weakness: the measures embodied in the action plan represent a consensual position on the priorities and challenges facing the sector and thereby have strong ownership. At the same time, it is not a government policy per se, although the Government has indicated that proposed revisions to Ghana’s Financial Sector Strategic Plan are likely to be based largely on the AFSAP. Government participation in and stakeholder endorsement of the AFSAP is a prior action for the operation. Note that this prior action is a revision to the original which referred to Government undertaking a baseline assessment of access to agricultural credit. The reason for the change is that political momentum among stakeholders behind the AFSAP emerged only after the process started and after the AgDPO 1 had been approved. Consequently, active participation by Government, and in particular by the two Ministries with most interest, was considered the most critical measure to influencing long-term policy regarding agricultural credit. This prior action is considered met, albeit in modified form.

94. Supporting the Government in revising the Fisheries and Aquaculture Policy to articulate its approach to implementing the 2002 Fisheries Act: The Policy framework will necessarily reflect important public policy trade-offs in the management of natural resources – trade-offs between competing uses today, and between contemporary uses that may undermine long-term viability. Consequently a broad-based consultative process with stakeholders is most likely to result in policy choices with the widest possible support. Government has prepared a new Fisheries and Aquaculture Policy that has benefited from widespread consultation, has been endorsed by the new Government, and has been published. This prior action has been met.

95. AgDPO 2 builds on and supports deeper organizational and institutional reform within the lead Ministry responsible for agriculture sector outcomes. The key elements of the program originate in previous analytical work, much of it with a policy and/or institutional focus. The PEIR indicates priority future reforms in public financial management and institutional restructuring. MoFA is acting on the conclusions as evidenced by management confirming an action plan to operationalize the key recommendations. More urgently, a key reform in PFM arena is timely budgetary releases, especially for services and investment spending, in line with the agricultural cycle (as evidenced by 60 percent of items 3 and 4 released by the third quarter). Both prior actions have been met.

96. Progress against prior actions and overall performance benchmarks is generally satisfactory. These prior actions are summarized in Table 7 along with a brief explanation of their criticality and the current status. In Table 7, the prior actions are organized in accordance with the objectives of the Agricultural Policy.

34

Table 7: Progress against AgDPO 2 Prior Actions

Prior Action Why is this prior action critical? Status Sector Objective 1: Food Security and Emergency Preparedness 1. Incorporate recommendations on reducing post-harvest losses in MoFA’s Sector Plan (2010 – 2015), thereby insuring these actions will be funded. (no change in Prior Action)

Post harvest losses in Ghana are reported to range between 10-50 percent depending on the commodity – low for the grains and high for the perishable commodities. As efforts are made to increase agricultural production, distribution, processing and storage to obtain a year-round supply, post-harvest loss prevention technology is necessary. It is therefore critical to update and measure the value of loss within the value chain from harvesting through transportation, handling, storage, processing and marketing, and to establish a regular monitoring system with the objective of mitigating post harvest loss in the food system.

Met. The Sector Plan incorporates priority recommendations of the Post Harvest Study.

Sector Objective 2: Increased Growth in Income 2. Implementation of the irrigation policy through: a) a survey of irrigation facilities, formal and informal to establish baseline b) an action plan for increasing management of irrigation facilities by WUAs adopted by MoFA (no change in Prior Action)

The irrigation policy marks a new beginning for irrigation development in Ghana where less than 2 percent of the land is under formal irrigation. Under the GPRS, irrigation development is expected to play a key role in achieving national food security, alleviating rural poverty and contributing to equitable economic development. The development of a practical and comprehensive irrigation policy is a critical step to sound management of water resources and irrigation facilities. Based on this policy, which emphasizes the role of private, non-state actors in the management of irrigation schemes, irrigation is expected to play a pivotal role in increasing productivity and supporting agricultural development in Ghana.

Met. The survey of all ten administrative regions has been completed. Met. The Action Plan for JISM has been adopted and activities are captured in the 2009 annual budget and work plan of GIDA.

Cooperative Bill submitted to Parliament (no change in Prior Action)

The agricultural extension policy of MoFA highlights service delivery through farmers’ groups as a dominant strategy for a more cost effective and rapid diffusion of technology to small-scale farmers. These small scale farmers face diseconomies of scale in accessing inputs, credit and markets for their outputs. Organizing farmers into groups enables them to engage more effectively in input markets and in value chains as economic agents. The Cooperatives Bill and the district corporation regulation will provide essential legal cover and regulatory guidance to these organizations as they increase their participation and investments in the sector, thereby providing a more sustainable institutional framework for cooperatives, for-profit and not-for-profit farmer and civil society organizations engaged in farming or agro-processing activities.

Not met. Submission of the Bill was delayed due to hiatus of new legislation pre-election. The Bill has been submitted to Cabinet and GoG have confirmed that the Bill will be resubmitted by in 2010.

Action plan for improving access to agricultural credit (revised Prior Action).

Credit to agriculture remains at less than 10 percent and more effort is needed to increase the relevant of financial products to farmers and to ensure appropriate access to finance on the right terms if productivity enhancing investments are to be made.

Met. The AFSAP has been prepared by stakeholders including MoFA and MoFEP.

35

Draft Fisheries and Aquaculture Policy prepared after consultations with stakeholders (no change in Prior Action)

The fisheries sector has the potential to be a major sustainable source of wealth if managed appropriate. This requires effective and appropriate fisheries management and clear institutional roles and functions among various relevant bodies.

Met. Draft Policy document prepared and discussed with stakeholders.

Sector Objective 3: Increased Competitiveness and Enhanced Integration into Domestic and International Markets Continued commitment to increasing private sector participation in agriculture through: a) management for Shed 9 is competitively recruited and in place, with the facility being utilized on a commercial basis b) Facilitate contractual arrangements between small holders and private sector by removing market information barriers through maintaining and using a web-based database on out-growers. (no change in Prior Action)

The fruit terminal at Tema (Shed 9) has been upgraded to a cold storage facility. Ownership remains with the GPHA. Given that the structure presents an opportunity for higher exports of fruits from Ghana, the private management of the structure is the most efficient option for the Government to achieve its objectives of facilitating higher levels of private sector activity in the sub-sector of horticultural production. The Government therefore intends to transfer the facility through a transparent, competitive process, to the private sector under an industry ownership or a private-public partnership arrangement. Small holders have been organized and integrated into the value chain of pineapple. These small holders are critical to the survival of the horticulture industry in Ghana, especially in pineapple where 40 percent of supply comes from small holders.

Met. Facility launched on 4th September, 2008 and the management contract signed. Met. The database is constructed and is available on-line.

Sector Objective 4: Sustainable Management of Land and Environment Sustainable Agricultural Land Management Strategy discussed and adopted by MoFA (no change in Prior Action) Strategic environmental assessment to identify actions needed for the implementation of the revised Food and Agriculture Sector Development Policy (no change in Prior Action)

Sustainable agricultural growth is contingent on sound management of soil and water resources. Nutrient mining and soil degradation has undermined growth. Adaptation to climate change and the interface with disaster risk reduction requires a systemic approach to SLM.

Met. The Strategy document has been published. Met. The Strategic environmental assessment is complete and Advisory Notes have been published.

Sector objective 5: Science and Technology Applied in Food and Agriculture Development Baseline study on the adoption rate of technologies by farmers participating in demonstrations carried out to identify key variables to motivate behavior change (no change in Prior Action)

Closing the productivity gap is critical if farm incomes are to increase and food security to be improved. There is little evidence on what kind of technologies are being adopted by farmers, despite substantial resources going into new technology generation. A baseline survey will highlight which particular technologies are being adopted and, crucially, why. This will inform future extension strategies.

Not met. Original study did not meet MoFA quality standards and is being repeated.

36

Sector objective 6: Improved Institutional Coordination MOFA completes PEIR to inform institutional performance and reforms, including the identification of areas for improvements in the short and medium term (no change in Prior Action) Released at least 80 percent of the committed 2008 MoFA national budget to Items 3 and 4 and released at least 60 percent of 2009 allocations by the third quarter 2009. (clarification in wording but no substantive change in Prior Action)

The PEIR is the first robust diagnostic tool for documenting weaknesses in PFM and in the capability of MoFA. To be effective, the study needs to solicit a clear management response on how the recommendations will be taken forward by MoFA management. Previous ERPFMs and the PEIR document partial and late expenditure releases for investment projects. This undermines the usefulness of activities by providing only part-funding and risks missing the planting season.

Met. Final report submitted and MoFA management action plan has been prepared. Met. Data for releases for 2008 and up to Q3 in 2009 have been provided.

97. A revised overall Policy Matrix for the AgDPO is provided in Table 8. Table 8 includes, for completeness, the indicative performance benchmarks for the third operation as identified at the beginning of the series. The third operation in the series will not be pursued, as noted earlier, but its elements will be reviewed in the course of design of the new series (hence the shaded column in Table 8) based on their relevance to the newly prepared Sector Plan under the CAADP umbrella.

37

Table 8: Policy Matrix for the Agriculture DPO

Policy Objective

AgDPO 1 AgDPO 2 AgDPO 365 Expected Outcome

Sector Objective 1: Food security and emergency preparedness Improved food security

Value chain focused post-harvest loss survey completed by MoFA in accordance with Food security objective.

Incorporate recommendations on reducing post-harvest losses in MoFA’s Strategic Plan (2009 – 2011), thereby ensuring that these actions will be funded. Initiate a post harvest monitoring system

Strengthen emergency preparedness by inter alia (a) improving the management of strategic buffer stocks and (b) introducing options for weather insurances. Focus at the national and agro-ecological levels on the development of 5 key staple crops by addressing input constraints.

Reduction in post harvest losses by 5 percentage points. Baseline: average losses of 30 percent.

Sector Objective 2: Increased Growth in income Improved irrigation performance

Submission of irrigation policy to cabinet.

Implementation of the irrigation policy through: a) survey of irrigation facilities, formal and informal to establish baseline; b) action plan for increasing management of irrigation facilities by WUAs (establish baseline), adopted by MoFA.

Continue implementation of the irrigation policy by increasing the number of WUAs formally managing irrigation schemes by 50 percent over 2008 baseline. Improved collection of data by GIDA on irrigation efficiency to demonstrate improved use of irrigation facilities.

Improved management of irrigation facilities as reflected by improvement in land intensification ratio66 by 20 percent overall. Baseline: national average 0.9; 0.54 in the South; 1.42 in the North.

Increased development of Farmer based organization and their integration in markets and value chains

Develop legal framework to support the development of FBOs though, inter alia: (1) preparing draft Cooperatives Bill; and (2) concluding memorandum of understanding between MoFA and Ministry of Local Government and Rural Development providing for the implementation of regulations on the establishment and operation of FBOs as district corporations.

Cooperative Bill submitted to Parliament. Revise FBO development fund manual to focus on capacity building functions and arrive at agreed division of responsibilities between the FBO development fund and the Agricultural Development Fund

Promote transition to high value crops though integration of FBOs into out-grower schemes and other public-private partnerships

10 percent increase in FBO capacity for production, post harvest management and marketing of products (including by women members). Baseline: No. of functioning FBOs: 4,369; No. of FBOs accessing financial services: 1071; No. of FBOs accessing marketing information: 436.

Improved access to

Establish baseline for access to agriculture credit

Key actions aimed at increasing access to agricultural financing implemented

Improve share of credit going to agriculture by 3 percentage points.

65 As set out in the original program document for agDPO 1. 66 The land intensification ratio is defined as area of cropped land/area of irrigable land within command area

38

Policy Objective

AgDPO 1 AgDPO 2 AgDPO 365 Expected Outcome

agricultural credit

Action plan for improving access to agricultural credit

Baseline: 8 percent.

Improved management of Fisheries

Submit fisheries regulations LI1832 to parliament to strengthen governance in the sector.

Clarification of roles of Fisheries Commission and MoFA Fisheries Directorate as a prerequisite for organizational restructuring Annual report to include disclosure of a) list of industrial fishing permits and levies and fees status Draft Fisheries and Aquaculture Policy prepared after consultations with stakeholders

Completion of socio-economic and environmental review of the industrial and semi-industrial fishing sector, following up on recommendations of Country Environmental Assessment. Increasing and enforcing the legal minimum mesh size for fishing nets. Registration of artisanal fishing vessels as required by the Fisheries Act.

Policy and institutional framework established for improving regulation of marine fishing fleet and realizing appropriate revenue potential indicated by a 10 percent increase in IGFs over 2007.

Sector Objective 3: Increased competitiveness and enhanced integration into domestic and international markets Improved export diversification through strengthening value chains for key exports

Export diversification supported through improvements in value chains, especially through: (a) Issuing a request for expressions of interest to transfer management of Shed 9 multi-purpose fruit terminal at Team to the private sector with the aim to facilitate the provision of an uninterrupted cold chain from the field to the point of export; (b) Inclusion of small-holders in export value chains through improved organization and access to improved technologies.

Continued commitment to increasing private sector participation in agriculture through: a) management for Shed 9 is competitively recruited and in place, with the facility being utilized on a commercial basis b) facilitate contractual arrangements between small holders and private sector by removing market information barriers through maintaining and using a web-based database on out-growers

Identify strategies for increasing the adoption of good agricultural practices including food safety standards into crop and livestock farming. Seed Certification and Plant Quarantine Laws amended to comply with the International Seed Testing Association (ISTA) and the International Plant Protection Convention (IPPC) 1997 standards.

Increase in non-traditional agricultural exports (horticulture, oil seeds and nuts, fish and seafood) of 10 percent against the baseline. Baseline value of non-traditional agricultural exports = US$197.3 million.

Sector Objective 4: Sustainable management of land and environment Environmental Compliance (Natural Resource

Sustainable Agricultural Land Management Strategy discussed and adopted by MoFA

Mainstream SLM and environmental protection practices in agricultural sector planning and implementation through:

Improved management of agricultural land resources as measured by 3 percent increase in adoption of soil and water conservation technologies.

39

Policy Objective

AgDPO 1 AgDPO 2 AgDPO 365 Expected Outcome

Management) Indicators and monitoring and evaluation framework specific to SLM developed and adopted by MoFA , including the establishment of baseline data Strategic environmental assessment to identify actions needed for the implementation of the revised Food and Agriculture Sector Development Policy

(a) The development and implementation of a budgeted action plan; and

(b) Implementation of recommendations of the strategic environmental assessment in coordination with the EPA and MoFI especially to address impacts of expansion of agricultural lands.

Baseline to be set in 2008 by adoption rate survey.

Sector objective 5: Science and technology applied in food and agriculture development

Improved agricultural productivity

Increased participation of farmer representatives in priority setting of adaptive research through Research Extension Liaison Committees (RELCs).

Baseline study on the adoption rate of technologies by farmers participating in demonstrations carried out to identify key variables to motivate behavior change

Implement programs to motivate behavior change and increase adoption rate (target to be determined based on baseline study results), where possible with explicit attention to the North. Increase demand driven research as measured by number of research projects initiated that are farmer demanded. Increase delivery of extension through more effective methodologies as determined by analysis.

Increasing agricultural productivity as measured by improvements in adoption of new technologies as indicated by 30 percent increase in the adoption rate of new technologies. Baseline to be set in 2008 by adoption rate survey.

Sector objective 6: Improved Institutional Coordination Improved quality of budgetary processes and sector efficiency in public financial management

Approval of Strategic Plan 2008 – 2010 based on Medium term Expenditure Framework.

MOFA completes Public Expenditure and Institutional Review (PEIR) to inform institutional performance and reforms, including the identification of areas for improvements in the short and medium term. Released at least 80 percent of the

Address expenditure and institutional constraints raised by PEIR especially related to budget execution and repeat analysis as needed. 100 percent of GoG budget for items 3 and 4 committed and at least 80 percent released in 2009 (60 percent by 3rd quarter).

Improved budget allocation and execution based on strategic priority setting in GPRS II and the FASDEP and increased financial capacity and predictable financing to implement sector development plans, jointly indicated by an annual budget execution rate of 100 percent.

40

Policy Objective

AgDPO 1 AgDPO 2 AgDPO 365 Expected Outcome

committed 2008 MoFA national budget it Items 3 and 4 and released at least 60 percent of 2009 allocations by the third quarter 2009.

41

6. OPERATIONAL IMPLEMENTATION

A. POVERTY AND SOCIAL IMPACTS

98. The AgDPO series is predicated on the criticality of agricultural growth for poverty reduction. Agricultural growth remains central for poverty reduction. As reported in the Program Document for AgDPO 1, the Poverty and Social Impact Assessment (PSIA) of the government’s overall agricultural component of the GPRS II identified the most relevant aspects of the overall strategy from the point of view of poverty and social impacts, and those policy objectives that risked undermining the status of already disadvantaged groups. (See Section VI of the program document for AgDPO 1, report No. 43477-GH.)

99. At the policy level the draft Sector Plan incorporates two notable innovations in Government policy viz. targeted beneficiaries. The first is the increased emphasis on the food crops sector and food security, evidenced by increased allocations to these programs. (As reported in Table 6, a large proportion of the MTEF is allocated to programs under Policy Objective 1: food security and emergency preparedness.) The second is the parallel effort to scale-up sizeable investments in commercial agriculture and for these to include out-grower arrangements. These large-scale commercial farms were identified in the original PSIA which recommended that in pursuing commercial opportunities, links to small-holders be made.

100. With regard to the specific measures of the current operation, positive poverty and social impacts are expected and while the operation does not have an explicit regional focus, the operation contributes to the Government’s efforts to target regional disparities. First, by focusing on measures to improve the productivity of food crops the target beneficiaries are, by implication, poor small-holder farmers. They dominate the food crop sector; these farmers are the primary beneficiaries of the public extension system and they also suffer the most severe post-harvest losses. Second, poor subsistence farmers depend more heavily on FBOs – larger enterprises have sufficient critical mass and managerial capacity themselves – and an improved legislative environment will promote accountability within these organizations.

101. Subsistence farmers are most dependent on rain-fed agriculture, often adopt unsustainable agricultural practices, and are most at risk from increased weather variability induced by climate change. Therefore, measures to promote sustainable land management practices and more efficient and extensive use of small-scale irrigation schemes will be of direct benefit.

102. Although not specifically an element of the current policy matrix, the magnitude of the fertilizer subsidy in the Government’s program warrants special attention. The government is committed to scale up the program while improving its efficiency. If successful, the program has the potential to provide real benefits to small-holders through improved productivity in key food staples. (These programs typically do not help the extreme poor who are unable to access even subsidized fertilizer and/ or those unable to farm.) However, as discussed below, the risk of poor targeting and displacement of resources from genuine pro-poor interventions because of escalating costs of the subsidy is real.

B. FIDUCIARY ASPECTS

103. Public Financial Management Analytical Work: Ghana’s fiduciary environment is considered adequate for development policy lending. The 2009 draft ERPFM carried out

42

by the World Bank, together with some of the other development partners that contribute to the MDBS, confirmed the findings from earlier reports (including a 2006 PEFA Report) that Ghana has a solid legal and regulatory framework for public financial management that performs at an average level and occasionally above-average standards. A summary assessment of the country’s budget credibility and the quality of financial reporting is found in Box 2.

Box 2: Ghana’s Public Financial Management System: Key Findings

The key findings of the 2009 draft ERPFM assessment against six core PFM objectives are as follows:

Credibility of the Budget. Aggregate expenditure and revenue outturns broadly matched the budget plans, but credibility was diminished by variance across budget heads, reflecting weaknesses in budget formulation and the treatment of contingencies.

Comprehensiveness and Transparency of the Budget. This improved considerably over the period 2004-2008, through the incorporation in the Budget Statement of information on internally generated funds, direct donor disbursements, HIPC and statutory funds. However, in-year reporting was less comprehensive, hampering overall budget scrutiny and management.

Policy-based Budget. While budgets have become more policy-based in recent years, performance is held back by limited ability to cost strategies, the lack of effective wage bill planning, and the absence of a transparent link between planned and executed budget activities.

Predictability and Control in Budget Execution. GoG has improved commitment and other internal controls, but recognizes weaknesses in management and oversight of control systems.

Accounting, Recording and Reporting. This is predominantly a paper-based system, resulting in delays and data errors. Analytical and technical capacity constraints hamper MoFEP and line ministry efforts to monitor and analyze budget performance.

External Scrutiny and Audit. There are now more timely completed accounts and financial statements and timely submitted audit reports to the legislature, which in turn is more actively scrutinizing both budget and accounts. However, effective follow-up has only just begun, with the Parliament's Public Accounts Committee active in overseeing the accounts of line ministries of the Central Government by carrying out public hearings based on the Auditor General's reports spanning 2002 to 2005. For those accounts where there was found to be wrongdoing, the Public Accounts Committee submitted their report to the courts for the prosecution led by the Attorney General.

104. Credibility of the Budget. Reducing the deviation between budgeted and actual expenditures is essential to improve budget credibility according to the draft 2009 ERPFM. Table 9 shows that total budget deviation has improved since 2004, when actual expenditure exceeded budget by 12.4 percent, to only 3.2 percent in 2007. Budget credibility at individual Ministries, Departments and Agencies (MDAs) was less satisfactory. The budget deviation of actual expenditures at the MDA-level (when compared to the approved budgets) increased from 15.8 percent in 2003 to 36.3 percent in 2006, and dropped to 21.0 percent in 2007. Low budget credibility of MDAs is due to several factors, including (a) cash flow problems at the Treasury level; (b) lack of capacity and other implementation problems at the MDA-level; and (c) changes in priorities at the government level regarding how to allocate available resources. Strengthening budget preparation of the MDAs through the multi-annual budgetary frameworks, including all available resources, and better comprehensive reporting is needed, as is better budget execution.

43

Table 9: Budget Deviations by MDA, 2003 – 2007

Budget Year Total Expenditure

Deviation2 Total Expenditure

Variance3 Variance in Excess of

Total Deviation4

2003 2.3% 15.8% 13.6% 2004 12.4% 25.9% 13.4% 2005 8.0% 33.3% 25.3% 2006 6.0% 36.3% 30.3% 20075 3.2% 21.0% 17.7%

Source: Draft report 2009 External Review of PFM, Volume II, page 24. Notes: 1. Data cover both discretionary and statutory expenditures, exclude contingency, and measure: (i) individual deviations between originally budgeted expenditures and actual expenditure outturns for the 20 largest budget heads; and (ii) total deviations for the remaining budget heads as a group. 2. Figures refer to the absolute value of the difference between actual outturns and original budgeted amount, expressed as percent of original budgeted amount. For budgeted amounts, the original appropriated amounts were used, excluding supplementary budgets.3. Figures refer to the sum of the absolute value of deviations as a proportion of the total (original) budgeted allocation for primary expenditure. 4. Percentage difference between expenditure deviations and expenditure variations (previous two columns). 5. CAGD preliminary data, pending confirmation by the Auditor-General. It is to be noted that data on total expenditures differ from those compiled by MoFEP. Sources: MoFEP, CAGD 105. Treasury Realignment. To address cash flow problems, the Controller and Accountant General Department (CAGD) has integrated treasuries into the Finance/Accounts Division of MDAs and Metropolitan Municipal and District Assemblies. Highlights of realignment include (a) Treasury staff to be part of MDA; (b) day-to-day administration of Treasury functions to be within the purview of MDA management; and (c) CAGD will continue to be responsible for the recruitment and posting of accounting staff to the MDAs and Metropolitan Municipal and District Assemblies.

Disbursements and Auditing

106. Borrower and Credit Amount. The Borrower is the Republic of Ghana and this operation is a single-tranche IDA Credit of SDR 16.5 million ($25 million equivalent) that would be made available upon effectiveness. Repayment will be in US Dollars.

Disbursements

107. Borrower and credit amount. This operation is a single-tranche IDA Credit of SDR 16.5 million ($25 million equivalent) that would be made available upon Credit effectiveness, based on the completion of policy actions supported by this loan/ credit as discussed elsewhere in this Program Document.

108. Disbursement arrangements and use of funds. The Credit disbursement will follow the standard Bank procedures for Development Policy Lending. The Credit amount will be disbursed into a foreign currency account of the Borrower at Bank of Ghana that forms part of Republic of Ghana’s official foreign exchange reserves. The equivalent Cedis amount will immediately be transferred to the Consolidated Fund of Treasury account of the Borrower that is used to finance budgeted expenditures, and an equivalent amount credited to an account of the government available to finance budgeted expenditures. The Borrower will provide to the Bank a written confirmation that this transfer has been completed within two working days, and provide to the Bank any other relevant information relating to these matters that the Bank may reasonably request. The Government of Ghana will acknowledge receipt to IDA of the money into the foreign reserve account and the crediting of this amount in local currency to the Ghana

44

Government Main Cash Account. It is expected that the confirmation of receipt will be countersigned by the Controller and Accountant General.

109. Disbursements of the Credit will not be linked to any specific purchases and no procurement requirements have to be satisfied, except that the Borrower is required to comply with the standard negative list of excluded items that may not be financed with Bank Credit proceeds. In the event that the proceeds of the Credit are used for ineligible purposes as defined in the Financing Agreement, the equivalent amount of Credit will be cancelled and the Borrower will be required to refund an amount equal to the amount of the said payment. The administration of this Credit will be the responsibility of the Ministry of Finance. Ongoing discussions with the Government on the overall reform program being supported by this operation will form the basis for reporting on substantive policy issues. Fiduciary aspects and risks of this operation are discussed elsewhere in this document. The Bank will retain the option to seek an audit of the disbursement if considered necessary.

110. Auditing. Financial resources provided as budget support become part of the Consolidated Fund of the Treasury. The Association reserves right to request, at any time, an audit of the receipt and accounting of the disbursement in the budget management system of the Borrower. Upon the Association’s request, the Borrower shall: (i) have the account and the recording of amounts of the Credit into the Borrower’s budget management system audited by independent auditors acceptable to the Association, in accordance with consistently applied auditing standards acceptable to the Association; (ii) furnish to the Association as soon as available, but in any case not later than four months after the date of the Association’s request for such audit, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iii) furnish to the Association such other information concerning the said account and recording of Credit amounts into the budget management system, and the audit thereof, as the Association shall have reasonably requested.

C. IMPLEMENTATION, MONITORING AND EVALUATION

Implementation

111. The AgDPO 2 continues to apply the good practice principles of conditionality (Box 3). MoFEP and MoFA will be responsible for implementing this operation on behalf of the Government. MoFI has been abolished and responsibility merged with MoFA. Their functions will be in line with their normal institutional mandates. Disbursements will be released to MoFEP upon satisfactory attainment of the prior actions. It was originally envisaged that each AgDPO in the series will be scheduled for presentation in the first quarter of the calendar year, to enable Government to fully incorporate the DPO in the budget before it is presented to the Parliament during the fourth quarter of the calendar year. However, AgDPO 1 was approved at the end of the fourth quarter FY2008 and AgDPO 2 is being presented to the Board in the fourth quarter of FY2010 because of the additional time required to complete the prior actions and requirement of clear progress in macro-economic stabilization.

45

Box 3: Good Practice Principles of Conditionality

Principle 1: Reinforce Ownership

The Government of Ghana developed the FASDEP II, on the basis of which the current AgDPO series has been agreed to, through broad consultations on issues and challenges of promoting growth and poverty reduction through agriculture. Ownership is strengthened through implementing the CAADP agenda at the national level, evidenced by the Round Table and signing of the Compact in October 2009. The AgDPO is structured explicitly as the Bank’s instrument for supporting CAADP implementation further reinforcing national ownership.

Principle 2: Agree up front with the government and other financial partners on a coordinated accountability framework

The AgDPO is part of a concerted effort with DPs grouped around the FASDEP II and the sector investment plan. The AgDPO aims at reducing the Government’s transaction costs in dealing with development assistance by ensuring that the support is geared towards the sector strategy and investment plan. Mutual accountability is strengthened by the MoFA-DP JSR as the forum for reaching consensus on sector performance and priority measures moving forward.

Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances

The proposed operation will continue to increase the share of aid provided through general budget support while helping to deepen sector level policy dialogue. Supporting the national policy and sector plan within the CAADP framework, diversifies accountability from a project-specific framework to one based upon progress in achieving CAADP objectives. Notwithstanding current macroeconomic challenges, Ghana continues to be well placed to adopt budget support instruments. By closing the series with this operation and starting a new series thereafter, the Bank is responding strategically to changing political environment and emerging policy agendas.

Principle 4: Choose only actions critical for achieving results as conditions for disbursement

The number of critical actions in the policy matrix for AgDPO 2 being supported by this operation is 11. These were selected jointly by GoG for their importance in achieving sector objectives, and in order to demonstrate the importance attached to these reforms within GoG. The policy matrix for the current operation reflects previous advice to continue to streamline and strengthen prior actions to strategic critical measures.

Principle 5: Conduct transparent progress reviews conducive to predictable and performance-based financial support

The latest MoFA-DP JSR held in June 2009 included a transparent assessment of progress against prior actions for AgDPO 2. (More time was required to complete the prior actions; hence the Bank could not harmonize appraisal at that time, as was originally envisaged.) It is expected that proposed future series will be further aligned with this annual review process and in particular the next 2010 JSR, which will monitor CAADP implementation, and will be harmonized with the performance assessment of CIDA’s budgetary support. The reviews will also draw on the MDBS/ EGPRC assessments and will be aligned as far as possible with the timetables of these assessments.

Supervision Arrangements

112. Bank supervision will continue to be aligned with the activities of other donors, in particular with CIDA and with the sector monitoring activities in the context of post-CAADP monitoring. It will also be aligned the implementation of the policies being supported by the EGPRC/ MDBS. MoFEP would be responsible for the overall implementation of the proposed budget support, together with MoFA.

113. The actions to be monitored under the operation are extracted from government policy documents (e.g., FASDEP II, the FY2010 budget statement and the sector M&E matrix), ensuring this alignment and reducing the transaction costs of managing budgetary support for the government. Reporting arrangements will continue as laid out in AgDPO I. During the period of implementation of the program supported by the proposed DPO, supervision would draw on: (i) monthly reports on budget expenditures

46

with breakdown by MDA with a lag of no more that 6 weeks after the end of each month, and with the breakdown for Items 1-4 of the Ghanaian budget (personnel, administration, services, investment); (ii) quarterly reports on domestically financed poverty-related (including financed expenditures financed by the two debt relief initiatives)67, with a lag of no more that 6 weeks after the end of each month; (iii) sector progress reports; and (iv) sector monitoring and evaluation reports.

Table 10: DPO Reporting and Responsibility Assignment

Reporting Responsibility Monthly reports on budget expenditures with breakdown by Ministry, Department and Agency with a lag of no more that 6 weeks after the end of each quarter. These reports will also present the breakdown for Items 1-4 of the Ghanaian budget.

GoG (from EGPRC)

Monthly reports on domestically financed poverty-related (including HIPC financed expenditures), with a lag of no more that 6 weeks after the end of each quarter. These reports would include a breakdown along main poverty-related expenditure programmes and a breakdown for Items 1 – 4 of the Ghanaian budget (personnel, administration, services, investment).

GoG (from EGPRC)

Annual Progress Report on progress on the implementation of the GPRS II and its successor

GoG

Quarterly and Annual Sector Progress Reports (MoFA) GoG Monitoring and evaluation reports (MoFA) GoG 114. The Bank, with partners, will continue to support public discourse on critical policy issues through the Development Dialogue series. The launch of the 2008 World Development Report in Accra and Tamale signaled the Bank’s re-engagement with stake-holders on critical policy and strategy issues in the sector. More recent experience with cross-cutting themes such as the oil and gas forum (November, 2009) reinforces the value of Bank-sponsored events held on collaboration with Government and other stakeholders. More recently principles of partnership were confirmed in participation in the CAADP Round Table and will continue under this process.

Monitoring and Evaluation

115. The new sector monitoring framework will continue to serve as the basis for monitoring sector performance and therefore the results of this operation. The benchmarks in the proposed DPO series are aligned with the monitoring framework and are fully consistent with FASDEP II objectives. Expenditure reporting will be obtained from Government’s submissions to CAADP as well as data from the Accountant General. There are systemic concerns over the accuracy of agricultural statistics which feed the M&E system. IFPRI is helping Government determine areas for improvement in the collection of key agricultural data and it is expected that the Bank’s proposed assistance to the national statistical capability under the Ghana Statistics Development Program will incorporate capacity building.

67 The Highly Indebted Poor Country Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI).

47

Table 11: Results Framework for the Ghana Agriculture Development Policy Operation

Objective Expected Outcome (Target Value at end of

DPO Series)

Outcome Indicator/s Baseline Value and Date Outcomes from AgDPO 1 (end 2008)

Outcomes from AgDPO1 (end 2009)

Sector Objective 1: Food Security and Emergency Preparedness Improved food security

Reduction in post harvest losses by 5 percentage points

Post-harvest losses (4/30/2008) Percentage losses for key crops (major/minor season): Pineapple 25% / 32% Mango 61% / 36% Cassava 25% / 11% Maize 18% / 10% Rice 6% / 9% Sorghum 7% / 2% Tomato 20% / 30%

(12/31/2008) No data available. MOFA M&E system being updated to capture comparable data in future years

(12/31/2009) MOFA M&E system has been updated to capture comparable data in future years. Next study to capture comparable data due in 2010.

Increase in per capita production of key staple crops by 30 percent

Per capita production of key staple crops

(12/31/2007) Aggregated production levels (mt): Maize 1,219,601 Rice (milled) 185,341 Cassava 10,217,920 Sorghum 154,834 Yam 4,375,989 Groundnut 301,775

(12/31/2008) Aggregated production levels (mt) Maize 1,470,076 Rice (milled) 301,921 Cassava 11,351,090 Sorghum 330,950 Yam 4,894,848 Groundnut 470,099

(12/31/2009) Aggregated production levels (mt) Maize 1,619,000 Rice (milled) 391,000 Cassava 12,260,000 Sorghum 350,000 Yam 5,777,000 Groundnut 526,040

Sector Objective 2: Increased Growth in income Improved irrigation programme

Improvement in the land intensification ratios (for formal and informal schemes) by 20 percent overall

Land intensification ratio for formal and informal schemes68

(12/31/2007) Baseline ratio = 0.8069. The combined ratio for schemes in the north: 1.42 combined ratio for

(12/31/2008) Combined land use intensification ratio 0.65. Land use intensification ratio of formal schemes 0.85. Land

(12/31/2009) Combined land use intensification ratio 0.48 Land use intensification ratio of formal schemes: 0.47.

68 The land intensification ratio is defined as area of cropped land/area of irrigable land within command area 69 This baseline intensification ratio was based on a small sample of four schemes (combined formal and informal) in the North and South. The intensification ratio reported in the last column under AgDPO 1 progress to date covers a larger sample of formal and informal schemes. The expected land intensification ratio target outcomes are: 0.78 for the combined (formal and informal); 1.02 for formal schemes; and 0.58 for informal schemes

48

Objective Expected Outcome (Target Value at end of

DPO Series)

Outcome Indicator/s Baseline Value and Date Outcomes from AgDPO 1 (end 2008)

Outcomes from AgDPO1 (end 2009)

schemes in the South 0.54 informal schemes 0.48.

Land informal schemes: 0.48

Increased development Farmer based organization and their integration in markets and value chains

10 percent per annum increased in FBO capacity for production, post harvest management and marketing of products (including by women members) over baselines

FBO capacity for production, post harvest management and marketing of products (including by women members) over baselines

(12/31/2007) Number of function FBOs: 4,369 Number of FBOs accessing financial services: 1,152 Number of FBOs accessing marketing information: 873

(12/31/2008) Number of functioning FBOS: 5,039 Number of FBOs accessing financial services: 1,348 Number of FBOs accessing marketing information: 941

(11/31/2009) Number of functioning FBOS: 5,309 Number of FBOs accessing financial services: 2,283 Number of FBOs accessing marketing information: 2,110

Improved access to agricultural credit

Improve share of credit going to agriculture by 3 percent to a target value of 8 percent

Share of credit going to agriculture70

(12/31/2007) Outstanding Credit by Deposit Money Bank (source: BoG) – 4.46 percent (formal sector)

(12/31/2008) Outstanding Credit by Deposit Money Bank (source: BoG) – 4.32 percent (formal sector)

(12/31/2009) Outstanding Credit by Deposit Money Bank (source: BoG) – 4.71 percent (formal sector)

Improved management of Fisheries

Increased Internally Generated Funds form fisheries sector by 10 percent per annum

Internally generated funds from fisheries sector

(12/31/2007) Revenue from Fisheries Directorate: collected GH¢1,000,000 retained GH¢1,000,000 Revenues from Fisheries levy: collected GH¢400,000 retained GH¢400,000 (projections)

(12/31/2008) Revenue from Fisheries Directorate: collected GH¢1,791,548 retained GH¢1,791,548 Revenues from Fisheries levy: collected GH¢650,000 retained GH¢650,000

(12/31/2009) Revenue from Fisheries Directorate: collected GH¢1,802,532 retained: GH¢1,802,532 Revenues from Fisheries levy: collected GH¢1,501,189 retained GH¢1,501,189

Improved export diversification through

10 percent increase in the value of exports of nontraditional

Exports of nontraditional agricultural exports (CEPS71 definition) and

(12/31/2007) Baseline value of total non-traditional agricultural

(12/31/2008) Value of total nontraditional agricultural exports: US$187.6

(12/31/2009) Value of total nontraditional agricultural exports: US$108.6

70 The 3 percent refers to formal sector credit as reported by the Bank of Ghana. A baseline survey that includes Rural and Community Banks is underway. Once this is completed, the AgDPO would report on credit to both formal and informal sectors. 71 Customs, Excise and Prevention Service (CEPS)

49

Objective Expected Outcome (Target Value at end of

DPO Series)

Outcome Indicator/s Baseline Value and Date Outcomes from AgDPO 1 (end 2008)

Outcomes from AgDPO1 (end 2009)

strengthening value chains for key exports

agricultural commodities key specific commodities

exports: US$197.3 million; of which: ($mill) Pineapple $13.485 Mangoes $0.998 Banana $9.965 Tuna fish $52.753 Cashew nuts $10.779 Sheanuts $27.009

million72; of which: ($mill) Pineapple $11.842 Mangoes $0.521 Banana $12.717 Tuna fish $40.666 Cashew nuts $20.423 Sheanuts $24.939

million; of which ($mill): Pineapple $6.536 Mangoes $0.215 Banana $7.765 Tuna fish $18.823 Cashew nuts $18.029 Sheanuts $16.553

Sector Objective 4: Sustainable management of land and environment Environmental compliance (Natural Resource Management)

A 3 percent increase in the number of farmers adopting soil and water conservation technologies

Number of farmers adopting of soil and water conservation technologies

Baseline to be established in 2008. The previous baseline study was of poor quality and is being redone in 2009

Baseline conducted in 2010 under the auspices of the Extension Directorate, MoFA.

Sector Objective 5: Science and technology applied in food and agriculture development Improved agricultural productivity

A 30 percent improvement over 2007 – 2009, over the baseline of the number of farmers adopting new technologies

Number of farmers adopting new technologies

Baseline for adoption rate to be established in 2008. The previous baseline study was of poor quality and is being redone in 2009.

Baseline for adoption rate to be established in 2008. The previous baseline study was of poor quality and is being redone in 2009.

Sector Objective: Improved Institutional Coordination Improved quality of budgetary process and sector efficiency in public financial management

Target for budged execution for MOFA 100 percent

Percentage of budget execution for MOFA (to indicate improved budget allocation and execution baseline on strategic priority setting in GPRS II and the FASDEP)

(12/31/2007) Reported actual expenditures and budget allocations) from (2009) ERPFM for 2007 is GH¢40,365,

(12/31/2008) Reported actual expenditures and budget allocations from (2009) ERPFM for 2008 is GH¢68,534,219 and GH¢31,005,763 implying a budget execution ratio of 2.21

(12/31/2009) Approved budget for 2009: Gh¢202.6 million Actual expenditures total Gh¢165.0 million implying a budget execution ratio of 0.81 (data from Financial Controller).

72 This apparent anomaly in the aggregate published figure suggests a change in composition and is being investigated.

50

116. A revised Results Framework, presented in Table 11, has been incorporated, and includes progress to date under AgDPO 1. This framework reports the policy objectives listed under the Policy Matrix (Table 8) and several refined outcome indicators, based on new information obtained during the implementation of AgDPO 1. For example, in Table 11 under the objective of improved irrigation performance, as the GIDA expands their survey to cover a greater number of informal irrigation schemes as well as formal schemes, and land intensification ratios are obtained for both types of schemes, the expected outcome target intensification ratios (at the end of the DPO series) have been revised. At the time of AgDPO 1, the ratio for a representative sample of informal schemes was not available. Under the objective of improved access to agricultural credit, the baselines reported refer to Bank of Ghana data on formal sector credit. Once the ongoing Baseline Survey is completed, which includes Rural and Community Banks, there will be data regarding total formal and informal sector share of credit to agriculture. Under Sector Objectives 4 and 5, following the completion of a new baseline survey of the number of farmers adopting soil and water conservation technologies and other new technologies to increase agricultural productivity, which should provide a reasonable baseline for 2008, the DPO will refine the adoption rate outcome indicators.

D. ENVIRONMENTAL ASPECTS

117. As highlighted in the previous project document for AgDPO I, FASDEP II integrates environmental management as critical for sustainable agricultural growth. It proposes to strengthen land and water management. Environmental impact assessments will be carried out on MoFA’s programs. Improved food hygiene and good agricultural practices are embedded within the program and are integral to progress under CAADP. Moreover Ghana’s institutional framework continues to provide an effective and robust oversight of environmental matters. The EPA is being strengthened to be more effective in its role.

118. The specific measures relating to SLM and environmental assessments contained in the current program will further strengthen environmental aspects. The Advisory Notes produced by EPA to guide the implementation of FASDEP II provide concrete advice on the environmental risks and opportunities from the key strategies. This will also be reflected in the Sector Plan. EPA is also supporting a framework for environmental and social management plan and these are being integrated into MoFA’s sector M&E arrangements to ensure they are continually monitored.

119. The possibility of negative outcomes remains and GoG will need to remain diligent in its monitoring. The increased profitability from the increase in food prices could encourage rapid expansion of cultivated area which is typically a quick way of increasing production compared to (land) productivity improvements. A potential influx of large-scale commercial investments without due environmental safeguards is a particular concern. However, as already mentioned, the prevailing regulatory regime is reasonably robust giving confidence that such practices will be properly managed. The environmental impact from fertilizer use resulting from the voucher program is not expected to be adverse because levels of use are low and the subsidy is more likely to avoid reduction in use than to stimulate significantly increased use. Nonetheless the impact of fertilizer use will be monitored under the environmental assessments.

120. Finally, policy measures to promote diversification into high value crops and the integration into global markets may have negative consequences. Rapid expansion of export-sector agriculture could potentially lead to land degradation, deforestation, and reduction of biodiversity. Ghana’s horticulture sector is driven by the demands of

51

European consumers who seek confirmation of good agricultural practices. Formal standards such as GlobalGAP are conveyed to out-growers with links to large suppliers through technical assistance – certification procedures not only improve their market access but also convey substantive environmental (and social) benefits. Formalized arrangements require traceability and these are currently being deployed among pineapple farmers.

E. RISKS AND RISK MITIGATION

121. A major potential risk associated with the political transition was a significant modification in the prevailing policy underpinning the AgDPO series. The new Government has explicitly endorsed FASDEP II and confirmed that any revisions in emphasis and/ or specific priorities will be articulated in the sector plan. This sector plan is now largely complete with no major policy shifts. By submitting the sector plan as the national strategy under CAADP, the Government is reaffirming its priorities within the context of CAADP monitoring. The change in government, however, and commitments under the CAADP process (both to policy and investment targets) justify truncation of the former series and launch of a new one.

122. The major prevailing risk is an uncertain macro-economic environment. As reported in Chapter 2, progress to correct macroeconomic imbalance is substantial, but risks remain. These are being mitigated by Bank support to address the fiscal deficit (i.e. the $300 million EGPRC) and through an IMF program. In the context of shrinking fiscal space, risks of declining Government allocations to MoFA should be protected as part of the efforts to preserve pro-poor spending (which is an EGPRC second tranche condition). It is noteworthy that according to the Government’s own classification over 80 percent of MoFA spending is pro-poor compared to an average across all Ministries and Agencies of just 25 percent. Furthermore, at less than 2 percent of total government spending and with under-spending relative to objectives for agricultural growth, MoFA’s allocation offers little scope for budgetary savings.

123. Other countries that have adopted fertilizer subsidies have found that the fiscal costs of these programs expand exponentially and dominate the sector expenditures, and this risk is present in Ghana. At an estimated cost of $35m for 2009, the existing program is already a substantial proportion of the anticipated budget. Political economy factors can make it difficult to reign in coverage with the result that other equally important interventions can be squeezed out. The Government has confirmed its intent to scale up the program while improving its efficiency. The Bank and other development partners are supporting technical work on specific options. This issue will be a key feature of the proposed successor series of AgDPOs. Depending on the implementation modalities, a large-scale subsidy can deter private sector interest in input markets. By continuing with vouchers, rather than a state-led distribution network, private input dealers should be encouraged to serve a growing clientele.

124. Weaknesses in PFM undermine the effectiveness of Government spending and risk weakening the expected outcomes from sector budget support. This is a risk across all MDAs and is being effectively mitigated by substantial support to roll-out improved financial management systems. Annual ERPFMs provide updated diagnostics and recommended priority reforms are incorporated in the MDBS policy framework. At the sector level, risks are mitigated through MoFA-specific diagnostics (i.e. the PEIR), measures to restore oversight systems (e.g. the various budget and procurement committees, etc) and proposed technical assistance from the Government of Japan.

52

125. Finally, a key objective of the AgDPO is to contribute to improved harmonization and alignment consistent with the AAA which could be undermined without further progress towards the SWAp. Implementation of CAADP and in particular the holding of the Round Table and the signing of the Compact provides a clear mechanism for improved coordination not just among donors but a wider group of stakeholders. Post-Compact activities will include completion of the SWAp for those development partners willing and able to commit to deeper alignment.

Table 12: Assessment of Risks

Source of Risk Mitigation Strategy New political leadership discards or ignores FASDEP II resulting in major policy shift.

Confirmation of policy priorities of new Government in the Letter of Development Policy.

Difficult fiscal position forces revision of budget allocations to the detriment of agricultural sector and/ or macroeconomic worsening.

Collaboration with GoG to identify priority poverty reducing public expenditures. Bank and Fund supporting appropriate policy response to restore fiscal balance.

Fertilizer subsidy dominates available investment funding

DPs to provide technical assistance to refinement of voucher program, including long-term exit strategy.

Continued weakness in budget planning and execution hamper the effective execution of the program.

PEIR provides recommendations for improvements in PFM at the sector level, and the 2009 ERPFM makes recommendations for improvements in the MTEF. Consensus among DPs that PFM is the critical systemic area for improvements. PFM triggers in CIDA sector budget support and in the AgDPO provide leverage.

Delays in the completion of the SWAp framework prevent leverage of IDA resources.

Clear process for developing SWAp framework in place following CAADP Compact.

53

Annexes

54

ANNEX 1: OBJECTIVES AND EXPECTED OUTCOMES OF FASDEP II Sector Objective 1: Food security and emergency preparedness Self sufficiency in staple food production (maize, yam, cassava) maintained and

production of rice and cowpea increased by 10 percent and 5 percent respectively by 2010

5 percent of maize demand for human consumption, animal feed and seed secured as national strategic stocks by 2010

10,000 hectares of additional land put under irrigation (both formal and informal) by 2010

Consumption of locally produced nutritionally balanced foods increased Sector Objective 2: Improved growth in incomes and reduced income variability Population of small ruminants (sheep and goats) and guinea fowls increased by 50

percent by 2010. Production of tree crops (oil palm, citrus, mangoes and cashew) increased by 5,000

hectares by 2010. Production of vegetable in the dry season increased by 100 percent by 2010. 50,000 youth farmers trained and provided with farm plots by 2010. Production of agricultural non-traditional exports increased by 100 percent by 2010. Sector Objective 3: Increased competitiveness and enhanced integration into domestic and international markets 50 percent of farmers and all processors and exporters trained in export production and

marketing by 2010. Cool house facilities provided along the main trunk route from North to South and

transport vans provided to feed the cool houses by 2010. FBOs developed and trained in production, processing, marketing and export Standards, weights and grades are employed in the marketing of agricultural

commodities by 2010. Market information provision improved by 2008. Sector Objective 4: Sustainable management of land and environment Environmental sustainability issues mainstreamed in MOFA’s policies, plans and

programs by December 2008. Adoption of technologies and practices for reducing land degradation increased by 10

percent by 2010 National agricultural land use policy developed and implemented by December 2008. Sector Objective 5: Science and technology applied in food and agriculture development Adoption of agricultural technologies increased from 10 percent to 50 percent by 2010. 30 percent of Ghanaian farmers empowered to receive extension information through

audio-visual aids by 2010. Application of relevant agricultural research findings increased by December 2008. Sector Objective 6: Enhanced institutional coordination Research extension linkage strengthened. Public - private partnership projects increased by 100 percent by 2010. All agricultural sector projects reviewed to make them more effective by 2008.

55

Framework for collaboration and coordination of sector activities established at the national, regional and district levels by December 2008.

The strategies in FASDEP II include the following: Reform of land acquisition and property rights Accelerating provision of irrigation infrastructure Enhancing access to credit and inputs for agriculture Promoting selective crop development Improving access to mechanized agriculture Increasing access to extension services Provision of infrastructure for aquaculture Restoration of degraded environment The performance targets specified in FASDEP II are: Agricultural growth rate of 6-8 percent per annum over the next 4 years Crops and livestock leading the growth at an average annual growth rate of 6 percent Forestry and logging, and fisheries, each growing at 5 percent per annum Cocoa will remain robust in support of other sectors.

56

ANNEX 2: ON-GOING PRIORITY GOVERNMENT INTERVENTIONS

Technology Generation, Dissemination and Adoption Recent innovations in research and extension systems are showing mixed results. Experience with RELCs have demonstrated their value in bringing together the research and extension communities. However, long-term sustainability of this modality is hampered by the institutional divisions between, and differing operational priorities of, the research staff (under the CSIR) and the extension staff (under MoFA). Extension efforts are centered on two specific approaches: (1) the one-acre demonstration plot program provides public advice and inputs on a one-acre plot of a locally influential farmer to demonstrate the benefits of improved technologies; (2) the block-farm approach concentrates on larger private farms as a production center to which surrounding small-holders can be linked to technical and material support. MoFA provides inputs and access to output markets on credit and the scheme is expected to benefit 500,000 small-holders in 2009. In both programs, however, assessments undertaken as part of the MoFA-DP JSR (see paragraph 57) suggested some areas of weakness including host farmer’s willingness to pay for inputs perceived to be distributed freely and the subsequent impact on repayment rates for credit in kind. There are also a number of innovative private-sector led programs such as the Grains Alliance which is seeking to strengthen input dealers’ ability to package technical advice with the sales of inputs. The recent PEIR undertaken by MoFA highlighted the poor incentives facing extension staff and the low morale of front-line staff (AEAs). Efforts to build staff capacity has not been fully effective.73 A parallel but poor quality assessment of technology adoption provided few insights and MoFA have pledged to follow this up given its importance. New technologies typically require the use of improved seeds and other purchased inputs such as fertilizer. The seed growers association report that only 10 percent of farmers use certified seed. With support of the MCC, a new draft seed law has been produced to replace the 1972 NRCD Decree 100. The new law upgrades the domestic regulatory environment to be consistent with commitments under the regional economic bloc (ECOWAS) that obliges member states to mutually recognize seeds already registered in fellow member states (thereby reducing the costs of seed registration to the seed industry). With support from the USAID, the West Africa Seeds Alliance, a multi-stakeholder association including the seed industry, is training seed distributors and retailers and supporting demonstration efforts to raise demand. Improved input dealer networks are being supported by AGRA along with International Center for Soil Fertility under their Ghana Agro Dealers Development project which aims to enable 2,200 local agro-dealers to provide an estimated 850,000 potential smallholders clients with more affordable improved inputs. Marketing Opportunities and Financial Services Real gains from productivity improvements require that the incremental surplus can be efficiently and profitably marketed. In this regard, the magnitude of post-harvest losses as documented in the recent study74 suggests a quick-win for increasing farm

73 Does Training Strengthen Capacity? Lessons from Capacity Development in Ghana’s Ministry of Food and Agriculture, IFPRI (2007). 74 Harvest and Post harvest Baseline Study, Department of Agricultural Economics and Agribusiness, University of Ghana, 2008.

57

incomes with better handling and storage of commodities. Specific measures will differ by crop: food staples, for instance, typically experience high storage losses from disease and rodents whereas high-value horticultural products suffered high rates of damage from poor handling – losses of 60 percent were measured for mango, for instance. One proven solution is to engage commercial companies in the marketing of produce through contract farming or nucleus/ out-grower schemes. These are more common in the plantation crops of rubber and oil palm although this approach is spreading in part driven by private sector business needs such as that launched by Ghana Breweries to encourage sorghum production. Existing commercial plantations of oil palm and rubber are expanding innovative out-grower programs with neighboring small-holders. Development partners are supporting these efforts in innovative ways, including indirectly through technical assistance for venture capital funds (Ghana Breweries) or concessional financing to meet the start-up costs (oil palm and rubber). Nascent large scale food crop farms are also piloting such schemes in part to mitigate perceived risks from local resentment from surrounding communities. Despite a broadening of rural financial services, access to agricultural finance is extremely limited with only 8 percent of private sector formal credit allocated to agricultural lending. Past approaches have seen directed lending and/ or special credit programs for rural borrowers many of which have suffered from extremely low repayment rates associated with Government schemes. There is some evidence that this malaise continues to afflict in-kind credit schemes associated with the provision of inputs such as the block-farm program and a concerted effort will be required to ensure financial sustainability of these initiatives. At the same time, MoFA and MoFEP are collaborating on a revision of the EDIF to (i) broaden its mandate beyond just the export sector to include import substitution sector (i.e. food staples such as rice) and (ii) revise the specific financing instruments and eligibility of the Fund to be more attractive to agricultural borrowers. A weather index crop insurance scheme is being piloted and there are moves to launch a warehouse receipts system for food staples. Organizing Farmers to Enter the Value Chain FBOs are expected to play an increasingly important role in facilitating small-holder participation in value chains. MoFA’s recent drive to gather baseline information of FBOs will allow MoFA to better evaluate the particular function of each FBO – which range differ widely in area of focus, including water users associations to marketing associations – and their potential role as a conduit for service provision. Experience with the FBO Development Fund confirmed the benefits of autonomous farmer organizations with control over their own resources, although it was noted that the service provider network remains thin. However, the Fund has not been sustained in the absence of continued donor funding, indicating that the model has not been fully internalized within MoFA. Furthermore, FBOs require a solid legal footing if they are to mature into more sophisticated business entities – as some have the potential to do. Consequently, a revised Cooperative Bill is required that affords FBO appropriate enabling regulatory environment.

58

Improving Irrigation Irrigation sector performance is poor with low coverage and inefficient use of existing schemes. The land intensity ratio75 is less than one, indicative of dysfunctional schemes and/ or schemes located in inappropriate locations. Early reforms of the state apparatus remain partial and ineffective. A number of the large schemes were restructured to be ostensibly self-managing business entities intended to service, for a fee, resident farmers thereby ensuring financial and technical sustainability. However, contrary to intentions, fiscal sustainability is yet to be achieved and public transfers continue to fund the (sub-optimal) operation of the large schemes to the detriment of essential support for informal sector. GIDA is gradually reforming its approach by shifting attention to the informal schemes through (i) establishing a database of such schemes as a basic needs assessment in order to prioritize subsequent interventions and (ii) engaging in joint management arrangement with functional WUAs to transfer responsibility to users while retaining technical backstopping function. Other interventions in irrigation are the provision on credit of pumps to farmers alongside major rivers and the drilling of boreholes for inland farmers. Critical Cross-Cutting Themes Small-holder production of high value horticulture crops is the focus of the Government’s Horticulture Exports Industry Initiative (HEII).76 Under this framework, associations of small-holders were supported to meet the needs of sophisticated export markets, including securing certification for meeting relevant standards (known as GlobalGAP) and in negotiating supply contracts with European distributors. HEII is continuing to support the conversion to the new varieties demanded by the market.77 The rehabilitated cold storage facility at Tema port (Shed 9) is now on-line, the interim management contract has been signed and the company established to operate the facility on a not-for-profit basis. This will help the industry to reach a capacity of 300,000mt by 2010.78 Innovative investments in new horticulture enterprises are bedding in: for instance, the Integrated Tamale Fruit Company has begun trial exports of fresh mango from their out-grower scheme located in northern Ghana. Collaborative research continues to be facilitated by the Public/ Private Research Committee and a Geographic Information System Database Management System has been established to provide reliable and accessible data for planning. Nevertheless, evolving global markets continue to present new challenges for Ghana’s horticulture sector. A recent assessment of trends in global horticulture markets79 suggest that the association-based model adopted by HEII itself suffers from agency problems and has not been fully successful in Ghana in helping the horticulture sector achieve its potential. Rather, what is required is a structure akin to the out-grower 75 This is the ratio of the area cropped divided by the command area of the scheme. Full utilization of the scheme for double cropping – i.e. efficient use of the infrastructure – would yield a ratio of 2. 76 HEII has had a strong impact on the horticulture industry and has served as a model for other programs. The AfDB’s Export Marketing and Quality Awareness Program (EMQAP); Millennium Challenge Account (MCA) program and USAID’s Trade and Investment Program for Competitive Export Economy (TIPCEE) have drawn lessons from the HEII and the public-private partnership approach. 77 Once the conversion is complete, smallholders who contribute over 40 percent of exported pineapple should be able to export 23,000mt of MD2 by November 2009. 78 In 2008 Ghana exported 36,000mt of pineapples and 46,000mt of bananas plus a further 1,000mt each of papaya and mango. 79 Ghana Export Horticulture Cluster Strategic Profile Study, Natural Resources Institute (2009).

59

model, involving the presence of a number of vertically integrated multinational firms with their own farms providing inputs and output marketing services to surrounding small-holders on a contract-farming basis. Government policy, therefore, needs to create a supportive environment for foreign direct investment of multinationals in addition to on-going support for small-holder production. In this regard, Government is constituting a ‘task team’ jointly led by MoFA and the Ministry of Trade, Industry and President’s Special Initiatives to develop a framework for out-grower type schemes based on commercial agricultural investments in ‘nucleus’ farms. SLM approaches are being mainstreamed within agricultural programs. A Sustainable Agricultural Land Management Strategy has been launched jointly by MoFA and the EPA which has the primary mandate for SLM. As an initial step MoFA is screening their 2009 – 2011 work plans to identify those projects and programs that require full Environmental Impacts Assessments (EIAs). The Strategy maps out a range of measures to mainstream environmental agenda into agriculture-related policies and programs, and to ensure the promotion of environmentally sustainable new technologies. An Environment Unit has been established within MoFA with responsibility for environmental issues and to improve collaboration with the EPA. However, staff are yet to be trained and previous recommendations for EIAs are not always acted upon. Government is committed to improved SLM practices, while recognizing the complexities of effective action because of its cross-cutting nature. A cross-sectoral coordination mechanism co-chaired by the MoFEP and the Ministry of Local Government and Rural Development provides a focal point for SLM dialogue. This committee is leading the preparation of a Country SLM Investment Framework with technical assistance provided by TerrAfrica.80 Rural roads are an important element of sector expenditure and evidence that investments in road infrastructure provide real benefits to farmers.81 Yet 45 percent of the rural population remains over 2km from an all-season road. Under Ghana’s National Transport Policy and proposed Integrated Transport Plan the focus is on ensuring adequate maintenance of the existing road network given that only one-third of the nation’s 42,000km of feeder roads are in ‘good’ condition. The selection of feeder roads for priority treatment includes inputs from MoFA who have developed a transparent criteria for their selection process: (i) linking roads to areas with current or potential high crop production; (ii) connecting marketing areas to production areas; (iii) ensuring that the costs of spot improvements (e.g. bridges on roads to make them passable all season) does not exceed the cost of re-gravelling or maintaining existing roads.

80 TerrAfrica is a multi-stakeholder platform and World Bank’s Global Partnership Program (GPP) aiming at creating enabling conditions to increase sustainable land management in Sub-Saharan Africa. Ghana has been actively engaged in the TerrAfrica partnership since its first framing workshop in 2004. It is currently a member of the Executive Committee, representing West Africa, and is one of the four countries for priority support under the TerrAfrica Work Program. 81 According to an evaluation of the Rural Sector Development Program (RSDP), investments in road infrastructure over the period 2005 – 2008 resulted in an increase of 23 percent in the price of maize received by farmers. (Baseline Studies of RSDP, Ministry of Roads and Highways, 2006.)

60

ANNEX 3: LETTER OF DEVELOPMENT POLICY

61

62

63

64

65

66

67

68

69

70

ANNEX 4: IMF Assessment Letter

Ghana—Assessment Letter for the World Bank and Other Development Partners

March 31, 2010

Introduction This note provides the IMF staff assessment of recent economic developments and prospects in Ghana. It reflects discussions with the authorities during staff missions to Accra in October 2009 and March 2010 relating to the 2010 budget and other macroeconomic policies covered by the first and second reviews under the IMF’s Extended Credit Facility (ECF) arrangement. It is intended that these discussions, if concluded in the coming weeks, will permit an IMF Executive Board meeting to conclude the ECF reviews and consider the next tranche of IMF financing around late May 2010. Recent Macroeconomic Developments and Program Performance Growth in Ghana slowed from 7.3 percent in 2008 to about 3-4 percent in 2009 as lower private remittances and reduced access to trade credits were accompanied by tighter fiscal and monetary policies. The impact of the global recession was ameliorated by the strength in the prices of the country’s two main exports—cocoa and gold. The latest data suggest that the economy started to regain strength towards the end of 2009. On the fiscal front, the budget deficit was reduced from 14.5 percent of GDP in 2008 to 9.7 percent of GDP in 2009, close to the program target of 9.4 percent of GDP. This deficit figure excludes, however, new domestic arrears incurred in 2009, totaling more than 4 percent of GDP. These arrears were accumulated when cash flows were squeezed by a shortfall in indirect tax collections on account of the weaker economy, and as overruns were experienced in the public wage bill, investment spending, and borrowing costs. Monetary conditions were progressively tightened through 2008 and early 2009 under the central bank’s inflation targeting regime. By the second half of 2009, the growth rates of liquidity and credit aggregates had slowed markedly. Private credit saw no growth, in real terms, during 2009, after rising about one quarter in 2008. This compression would have been sharper still, in the absence of the fiscal consolidation in 2009, which helped reduce the crowding out associated with bank financing for the government deficit. With tighter fiscal and monetary policies, the balance of payments improved markedly through 2009, contributing to a stronger currency from July 2009 onwards. Reflecting these developments, twelve-month inflation fell to 14.2 percent in February 2010, from close to 20 percent during the first half of 2009. With evidence of declining inflation, monetary conditions were eased from end-2009, with the policy interest rate reduced in both November 2009 and February 2010, by a cumulative 250 basis points. The quantitative targets under the ECF arrangement were met in the second half of 2009, except for the September 2009 ceiling on the fiscal deficit, which was narrowly missed, and the continuous limit on external nonconcessional borrowing which was breached in November when a state enterprise liability was taken over by the budget. The deficit targets would have been missed by much larger margins, however, if large domestic arrears had not been accumulated. The net international reserve target was met by a large margin. Good progress was achieved in implementing most of the program’s structural measures, with some met ahead of time. Key achievements have been the establishment at

71

end-2009 of an integrated Ghana Revenue Authority and the launch of an important program of public finance management reforms. At the same time, progress has been slow in computerizing public agency payrolls and a review of tax exemptions has fallen behind schedule. The 2010 Economic Program The government’s 2010 economic program seeks a further reduction in the fiscal deficit to reduce pressures on inflation and reverse the deterioration in public debt indicators. The program is underpinned by measures to strengthen the management of public finances. The program assumes a pick-up in economic growth to the 4-5 percent range in 2010, with new private sector spending linked to the emerging oil sector more than offsetting the impact of continued fiscal tightening. Tighter fiscal policy and cautious monetary management are projected to reduce inflation to single-digit rates by end-2010. The 2010 budget The 2010 budget approved at end-2009 targeted a fiscal deficit of 7½ percent of GDP. Measures adopted in the 2010 budget to achieve this goal include a reimposition of import tariffs on cereals and edible oils that had been eliminated during the 2007–08 global food price boom; a reduction in import tariff exemptions; a significant rise in public fees and charges; an increase in mineral royalties from 3 percent to 5 percent (still pending); a re-introduction of ad valorem excise duties for tobacco and alcohol; and measures to strengthen revenue collections from the communications service tax. The budget also relies on sizeable dividend transfers from the Cocoa Board and Bank of Ghana. Subsidies for the electricity sector will be avoided by an adjustment of tariffs toward cost recovery levels. Recurrent spending is projected to rise in relation to GDP in 2010, partly as statutory fund and other spending recovers from a sharp compression in 2009. Investment spending is projected to decline slightly in relation to GDP. With outturn fiscal data for 2009 showing weaker tax receipts than anticipated at the time of the 2010 budget, the authorities now see the approved budget deficit target as unattainable, and have developed an updated fiscal framework targeting a deficit of 8 percent of GDP. To achieve this goal, the authorities intend to reduce spending on both investment and recurrent goods and services below appropriated levels. In addition, catch-up payments to statutory funds in respect of under-funding in 2009 are scheduled to be deferred until 2011–12. Notwithstanding this, the government intends to remain current on revenue transfers to statutory funds accruing in 2010, generating a marked upturn in incomes in 2010 with which to finance new infrastructure projects. Aside from the statutory funds, a number of domestic expenditure arrears were settled in early 2010 to ease the liquidity problems of contractors and their lending banks. The financing plan for the 2010 budget relies less on bank financing than in 2008–09, so a larger share of credit will be available to support private sector investment. Nonbank financing, including corporate and other private purchases of treasury bills, is projected to increase. A residual fiscal financing gap of $275 million for 2010 is projected to be met through the second tranche of the World Bank budget support loan approved in June 2009 ($150 million), plus new concessional support from the World Bank or other budget support partners. The outlook for public debt is somewhat more favorable than in earlier projections, in large part reflecting the recent strengthening of the exchange rate, which implies smaller

72

revaluation effects for external debt. Notwithstanding this, total public debt is projected at 64 percent of GDP in 2010, up from 60 percent of GDP in 2009, and a low of 42 percent of GDP in 2006 following debt relief. A marked decline in public debt ratios is projected only for 2011–12, with the projected reduction of the fiscal deficit to the 3–4 percent of GDP range. In the context of the anticipated combined first and second ECF reviews, the authorities intend to request leeway under the ECF arrangement to contract nonconcessional external debt for two new projects in a combined amount of $150 million, as well as scope to contract or guarantee up to $100 million in additional nonconcessional external debt for other high-return projects during the remainder of 2010. Preliminary updates to the joint Bank-Fund debt sustainability analysis (DSA) have been developed, using the latest debt data and updated financing projections consistent with the higher baseline for nonconcessional borrowing proposed for 2010. This DSA update suggests a substantial increase in debt vulnerability, though Ghana would remain among the group of countries classified as facing moderate risk of debt distress, in line with DSAs prepared in 2008 and 2009. In the baseline projections, external debt indicators remain below the threshold levels for debt distress. These results depend on the planned sustained reduction of the fiscal deficit to low levels; debt dynamics based instead on the continuation of fiscal deficits at the average levels of recent years would relatively quickly exceed the DSA threshold levels. Stress tests also indicate that the DSA outlook is sensitive to the economic growth and borrowing costs assumptions. The debt-to-GDP indicator is expected to be revised downwards over the course of 2010 as a result of the national accounts rebasing exercise which is projected to result in an upward revision to nominal GDP. Importantly, however, this would not affect the debt service to export and revenue ratios, which are projected to rise sharply (while still consistent with moderate risk of debt distress) over the coming decade. Structural policies The government has initiated reforms aimed at strengthening public financial management, revenue administration, and public administration. At end-2009, the integrated Ghana Revenue Authority was established, marking a key step in the program to strengthen revenue administration. On tax policy, a comprehensive review is underway of zero-rate VAT items and of the nature and scope of tax exemptions and discretionary waivers. The government completed a review of the current financial management information system, and established a project implementation committee to manage implementation of the upgraded system. On civil service reforms, the government assigned responsibility to the Ministry for the Public Sector to complete a review of subvented agencies in order to determine the future status of these agencies. While only limited progress was made in migrating the payroll of all subvented agencies to an integrated database, the government completed an audit of all staff of the Ghana Education Service and has contained growth in the size of the civil service by limiting new hiring principally to the education and health services. To avoid risks to the budget, the administrative ceilings for petroleum product prices continue to be subject to bi-weekly review to ensure that prices reflect trends in prevailing costs. On the monetary side, the Bank of Ghana has launched a newly-designed website that highlights the goal and outcomes of the inflation-targeting regime, and provides more user-friendly access to key data and publication. Risks and Vulnerabilities Possible slippages in fiscal performance represent the key downside risk to the program.

73

On the expenditure side, the public sector wage bill remains high in relation to both the tax base and the size of the economy. In 2009, the wage bill exceeded budgeted levels, and, unless carefully managed, the new “single spine” public pay structure to be phased in from late 2010 could prove more expensive than anticipated. If planned measures to reduce the wage burden on the budget do not achieve their intended results, Ghana’s high public administration costs could crowd out the fiscal space created by future oil revenues. The ceiling on domestically-financed investments has been cut to a very low level in the 2010 budget, which increases the risk of over-runs. Contracting will need to be monitored very closely to avoid breaches of budget targets. As noted below, an increase in electricity tariffs to cost recovery level will be critical to avoiding further large subsidies to the electricity sector. In the event that this increase is not quickly implemented, offsetting fiscal measures would need to be adopted. On the revenue side, Fund staff has reviewed the 2010 projections closely with the authorities with the view to establishing a solid baseline. There are upside risks, if the economy recovers more strongly than projected. But there are also downside risks arising from the recently adopted and proposed taxes and fees, if these do not yield their anticipated returns. Overall, the authorities need to monitor budget developments closely and be ready to take corrective fiscal measures, should conditions warrant. The smaller-than-originally-programmed reduction of the fiscal deficit in 2010 as well as the issue of new public debt equivalent to 1.7 percent of GDP in March 2010 to repay state-owned enterprise debts to the Ghana Commercial Bank and strengthen its liquidity has required increased government resort to bank financing. Slippage relative to this revised fiscal path could complicate liquidity management, with adverse implications for the effectiveness of the inflation targeting regime. Looking ahead to 2011, it will be important to contain expectations for public sector spending during the transition to oil producer status. Although oil will generate important new revenues, the available fiscal space for new projects will depend critically on the soundness of the non-oil budget. In this connection, Ghana’s fiscal deficit going into the oil era remains large and, in the absence of other revenue or expenditure measures in 2011, the scope for new projects will likely be relatively modest, at least in the early years of oil production, and spending plans will need to be developed accordingly. In the broader public sector, a number of state-owned enterprises pose risks to public finances. Steps are underway, supported by the World Bank, to return the electricity sector to financial viability. An early adjustment of the electricity tariff to cost recovery levels will be critical to achieve this. At the same time, steps are needed to tackle the financial liabilities of the oil refinery, which will likely require public funding. A common origin of these financial problems has been under-pricing of energy products. Going forward, it will be important to maintain the existing market-based pricing formula for petroleum products, and implement regular reviews of the new electricity tariff structure to maintain cost recovery. In the monetary and financial sectors, it will be important to maintain sufficiently tight monetary conditions to consolidate the decline in inflation. Clear communication of the disinflation strategy will be important to rebuild credibility in the goals of the inflation target framework. In the banking sector, the rise in nonperforming loans appears manageable, as capital ratios remains strong. However, oversight arrangements should be strengthened for institutions with key risk factors, such as rapid credit growth and high funding costs.

74

2007 2011 2012ECF ECF Proj. Proj.

7/091 Est. 7/091 Proj.

National accounts and pricesReal GDP 5.7 7.3 4.5 3.5 5.0 4.5 20.1 6.8Real GDP (nonoil) 5.7 7.3 4.5 3.5 5.0 4.5 5.6 6.0Real GDP per capita 3.0 4.6 1.9 0.9 2.4 1.9 17.2 4.2GDP deflator 13.9 16.9 17.2 20.7 11.0 12.8 9.0 7.6Consumer price index (annual average) 10.7 16.5 18.2 19.3 10.5 10.6 8.9 6.8Consumer price index (end of period) 12.7 18.1 14.6 16.0 9.2 9.5 8.5 5.0

External sectorExports, f.o.b. (percentage change, in US$) 11.9 26.3 9.8 10.8 5.9 12.2 48.5 2.8

Excluding oil exports 11.9 26.3 9.8 10.8 5.9 12.2 1.1 -2.6Imports, f.o.b. (percentage change, in US$) 19.4 27.3 -9.4 -21.6 8.5 29.4 17.9 3.4Export volume (excluding oil) -3.7 7.5 7.2 -1.0 7.3 5.5 8.0 5.8Import volume 14.6 14.1 6.4 -10.1 2.0 21.8 16.1 2.7Terms of trade 11.5 5.3 20.3 28.3 -7.3 0.0 -7.8 -8.7Nominal effective exchange rate (end of period) -10.9 -10.0 … -22.5 … … … …Real effective exchange rate (end of period), (depreciation -3.4 3.0 … -11.7 … … … …Cedis (new) per U.S. dollar (end of period) 1.0 1.2 … 1.4 … … … …

Money and credit

Net domestic assets2 27.8 46.2 8.6 -4.5 2.8 15.4 22.2 14.6

Credit to the private sector2 37.1 33.3 19.5 12.9 21.9 15.5 18.6 15.0Real private sector credit (% annual changes) 41.9 25.4 9.0 0.5 15.0 10.2 15.4 16.1Broad money (excluding foreign currency deposits) 43.0 31.2 14.5 21.2 16.5 22.6 34.8 24.8Velocity (GDP/average broad money) 3.0 2.8 3.0 2.9 3.0 2.8 2.7 2.5Prime rate (Bank of Ghana; percent; end of period) 13.5 17.0 … 18.0 … … … …

Investment and saving Gross investment 33.8 35.9 30.6 30.1 37.3 34.8 32.8 30.4

Private3 19.5 20.3 18.0 17.8 25.4 24.1 23.2 21.5

Central government4 14.4 15.7 12.6 12.3 11.9 10.7 9.7 8.9Gross national saving 21.8 17.3 17.6 25.0 21.4 22.0 24.7 22.9

Private3 14.1 12.5 10.4 19.6 9.4 16.7 15.6 12.9

Central government4 7.7 4.8 7.2 5.5 8.5 5.1 9.1 10.0New fiscal measures (net S/I impact) … … 0.0 0.0 3.5 0.2 0.0 0.0

Foreign savings 12.0 18.7 13.0 5.1 15.9 12.8 8.1 7.5

Government operationsTotal revenue 22.7 22.8 23.9 22.5 24.3 25.2 29.4 29.3Grants 6.1 4.7 6.0 5.0 5.0 5.1 4.5 3.0Total expenditure 37.3 41.0 36.7 34.6 37.9 37.5 36.0 33.9Arrears clearance and VAT refunds 0.7 1.0 2.7 2.5 0.9 1.0 2.4 1.8New fiscal measures … … 0.0 0.0 3.5 0.2 0.0 0.0Overall balance (including grants) -9.2 -14.5 -9.4 -9.7 -6.0 -8.0 -4.5 -3.5Net domestic financing 1.3 9.8 4.8 4.7 0.8 6.5 2.6 2.5Gross government debt 51.2 57.6 66.4 60.4 66.6 65.0 62.1 59.2

Domestic debt 26.4 29.7 28.5 27.9 24.9 30.2 28.8 27.6

External debt5 24.8 27.8 37.9 32.5 41.7 34.9 33.3 31.6

External sector Current account balance (including official transfers) -12.0 -18.7 -13.0 -5.1 -15.9 -12.8 -8.1 -7.5Current account balance (excluding official transfers) -15.8 -22.7 -18.0 -9.6 -19.9 -17.1 -11.4 -9.5NPV of external debt outstanding 19.8 20.2 27.9 24.2 30.9 25.9 21.8 20.6

percent of exports of goods and services 49.2 47.6 53.4 48.2 56.8 53.2 42.8 45.4Gross international reserves (millions of US$) 2,837 2,036 2,403 3,165 2,803 3,576 4,526 5,902months of imports of goods and services 2.7 2.3 2.3 2.9 2.4 2.8 3.5 4.3Total donor support (millions of US$) 1,171 1,478 1,722 1,703 1,474 1,515 1,443 1,064

percent of GDP 7.8 8.9 12.0 11.0 9.9 8.5 6.2 4.0

Memorandum items:Nominal GDP (millions of GHc) 14,046 17,618 21,577 22,007 25,146 25,934 33,952 39,027

Sources: Data provided by Ghanaian authorities; and IMF staff estimates and projections.

1 After including SDR allocation in 2009.2 Percent of broad money (including foreign currency deposits) at the beginning of the period. 3 Including public enterprises and errors and omissions. 4 Before new fiscal measures. 5 Includes potential new exceptional financing starting in 2010-12.

Table 1. Ghana: Selected Economic and Financial Indicators, 2007–12

(Percent of nonoil GDP)

(Percent of GDP; unless otherwise specified)

(Annual percentage change; unless otherwise specified)

2008 2009 2010

(Percent of GDP)

75