Ghana graduated to become a lower middle-income country in 2010 after a rebasing of its GDP. The graduation has been followed by lower economic growth, persistent fiscal deficits and a changed composition in the country’s development finance, including a falling share of ODA and increasing public debt stocks. These developments are taking place in the context of the adoption of the SDGs in the United Nations in 2015, where all estimates indicate that the achievement of the SDGs will require a significant increase in development finance.
The present Evaluation Study contains a preliminary analysis of both the changed composition of development finance in Ghana, including the implications of graduation, and related fiscal management challenges as well as a brief review of the political and institutional response of the Government of Ghana.
Financing the fiscal deficits in Ghana has implied that public debt has increased and is now more than 50 percent of GNI, and debt service has tripled as a share of the government budget. Domestic resource mobilization is exhibiting an increasing trend, but at a moderate pace, and public revenues in 2017 were lower than programmed. ODA has remained more or less at the same level in constant prices, but bilateral disbursements have decreased considerably in recent years. In contrast, there has been a significant growth in FDIs and remittances.
The level of public investments has decreased, and social sectors and the agricultural sector, which are critical for the fulfilment of the SDGs, are receiving a relatively small share of the budget, while spending on administration, in particular salaries, and debt service constitutes most of the budget. The changed composition of development finance in Ghana has therefore influenced sectoral allocations.
The Government of Ghana is aware of the need to address these challenges and to adapt to the changing landscape of development finance. A number of strategies and policies have been developed, including for debt management and financial management, a strengthening of the local financial market, domestic resource mobilization, and mobilization of private development finance. These initiatives are, however, at varying levels of operationalization, and the ability of the government to implement such an ambitious reform agenda has been questioned.
The analysis makes five main conclusions. First, the graduation has been followed by a change in the composition of development finance, including decreasing bilateral disbursements indicating a ‘herding’ effect as described in the literature. Second, while the graduation process may have contributed to developments in Ghana, a key challenge is public financial management, which has led to persistent deficits and underfunding of the social sectors and agriculture. Third, in spite of efforts to improve domestic resource mobilization, Ghana is still lagging behind comparable countries, which is critical in view of the government’s intention of financing a significant share of the development needs with domestic finance. Fourth, Ghana has not developed a plan that can guide the implementation of the SDGs, and although this is early in the process, there is major concern whether Ghana will be able to finance the fulfilment of the SDGs. Fifth, the experience of Ghana documents the complex challenges countries face when they transition through different phases, but also that transition processes will be country specific, and that the international community could play an important role in assisting in these processes.Top