Ghana’s economy grew by 6.6 percent per year, on average, from 2000 to 2013 resulting in a doubling of the economy, and Ghana graduated to a middle-income country classification after a rebasing of its GDP in 2010. After a peak in 2011, however, Ghana’s economic growth has decreased considerably, resulting in real per capita GDP growth of less than 2 percent in 2014-2016 (see Figure 1 and Table 1 in the Appendix for basic macroeconomic indicators).
Figure 1: Ghana’s economic growth, ODA inflow and external debt, 2007-2016
The graduation from low-income to lower middle-income status has implications for Ghana’s access to concessional development finance. After a transition process, Ghana will no longer be eligible for IDA funding, and a reduction in net ODA received relative to GNI can already be observed, even though Ghana as a lower middle-income country is still on the DAC list of ODA-eligible countries. At the same time, the graduation to lower middle-income status improves access to international capital markets, and Ghana has issued sovereign bonds and obtained loans on less-concessional terms. In addition, a growing diversity of finance instruments is being used with the implication that public debt and the external debt stocks in Ghana have grown significantly in recent years, and its sustainability has been questioned. Figure 1 illustrates how the external debt stocks surged from 20 percent of GNI in 2007 to more than 50 percent of GNI in 2016.
Finally, in 2015, the United Nations adopted the Sustainable Development Goals (SDGs), and at the Third International Conference on Financing for Development in Addis Ababa a call was made for strengthened efforts to mobilize all forms of finance for development. For Ghana, being in the middle of the graduation process, this decision implies particular challenges.
Ghana’s graduation into lower middle-income status was anticipated by the government. However, the graduation process has never been accompanied by a coherent strategy to develop a national financing framework to compensate for the consequences of graduation or a financing plan for the SDGs. In addition, fiscal mismanagement in recent years (with significant budget volatility – both in overall spending and allocations between sectors - in particular close to elections (Mosley and Chiripanhura, 2016, Resnick, 2016) combined with increasing debt service, slow growth in domestic resource mobilization, and limited economic growth has left the country with significant challenges of financing its long-term development.
Several studies have analyzed the implications of graduation from low-income to lower middle-income country status (Heckelman et al., 2011, Moss and Majerowicz, 2012 and World Bank, 2015, pp. 41-45). This literature is closely related to discussions of ‘beyond aid’ (Hailu and Shiferaw, 2016). Bilateral donors’ reactions to graduation are also analyzed in several studies, including discussions of so-called ‘herding’ and ‘crowding–in and crowding-out’ effects (Kanbur, 2014, Knack et al., 2014). From this literature a debate about new development finance sources and instruments is emerging. Still, the literature is scarce with respect to country specific analyses of the graduation process and how individual countries adapt to a new development finance landscape, including new finance instruments.
Graduation has also attracted significant attention at the international political level. The challenges of graduation are explicitly mentioned in the Addis Ababa Action Agenda (UN, 2015) and have been on the agenda at various meetings in OECD as well as other UN meetings. There seems to be an increasing understanding of the often complex processes when countries transition through different phases of development.
This Evaluation Study takes a first look at Ghana’s graduation from low-income to lower middle-income country. The Study focuses on the past 5-10 years, which is the period when the graduation process was initiated, and ODA from traditional donors was gradually reduced. The emphasis in the Study will in particular be on the following five interlinked questions:
- How has the composition of development finance sources in Ghana changed?
- What is the impact of graduation on Ghana’s development finance?
- What are the fiscal management challenges facing Ghana?
- How has Ghana dealt with the challenges and opportunities of a changing composition of development finance?
- What are the prospects for Ghana being able to finance the SDGs?
 Note that external debt stocks are the sum of public, publicly guaranteed, and privately non-guaranteed long-term debt, use of IMT credit, and short-term debt. In 2016, public and publicly guaranteed external debt stocks accounted for approximately 80 percent of total external debt stocks.
 In the Addis Ababa Action Agenda it was suggested that countries develop “cohesive nationally owned sustainable development strategies, supported by integrated national financing frameworks, …” (see UN (2015), paragraph 9).
 See in particular paragraphs 72-73.
 See e.g. OECD-DAC (2017).
 See UN (2018), pp. 97-102.Top