Documnnt Of The World Bank FOR OFFICIAL USE ONLY C f5./Rt >Y,s Report No. P-4493-CH MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 8.6 MILLION TO THE REPUBLIC OF GHANA FOR A STRUCTURAL ADJUSTMENT INSTITUTIONAL SUPPORT PROJECT March 23, 1987 4 This document has a restricted distribution and may be used by recipients only in the perfornnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit Calendar 1985 From January 1986 From September 1986 US$1 054.054 ¢90.0 ¢128-155 Cedi (¢) 1 US$0.0185 US$0.011 US$0.0073-0.0066 A dual exchange rate system was established on September 19, 1986 when a foreign exchange auction was instituted for specified transactions. The 090 rate applied to the first window (cocoa and residual oil exports, petroleum and essential drugs imports, and central government debt service contracted before January 1, 1986); the rate on the second window was established at the weekly auction. The two rates were unified with effect from February 20, 1987; all transactions are now valued at the rate emerging in the weekly auction. In the week ending February 27, 1987, the marginal rate at the auction was Z155=US$1.00. ABBREVIATIONS ERP Economic Recovery Program MFEP Ministry of Finance and Economic Planning ODA Overseas Development Administration OHCS Office of the Head of the Civil Service UNDP United Nations Development Program FOR OMCIAL USE ONLY GHANA STRUCTURAL ADJUSTMENT INSTITUTIONAL SUPPORT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of the Republic of Ghana Beneficiaries: Ministry of Finance and Economic Planning Office of the Read of the Civil Service Amount: SDR 8.6 million (US$10.8 million equivalent) Terms: Standard Onlending Terms: Not applicable Financing Plan Local Foreig.n Total IDA 3.0 7.8 10.8 Government 2.2 - 2.2 ODA - 1.1 1.1 Total 5.2 8.9 14.1 Economic Rate of Return: Not applicable Staff Appraisal Report: No. 6693-GE This document has a restricted distribution and may be used by recipients only in the performance or their official duties. Its contents may not otherwise be disclosed without World Bank authorization. MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR A STRUCTURAL ADJUSTMENT INSTITUTIONAL SUPPORT PROJECT 1. The following report on a proposed development credit to Ghana for SDR 8.6 million (US$10.8 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms and help finance an institutional support project linked to the Structural Adjustment Program (see Report No. P-4403-GH, dated March 23, 1987 distributed separately). 2. Background. Since 1983, Ghana has been implementing an ambitious Economic Reform Program (ERP), making profound changes in economic policies and institutions. In carrying out the ERP, the Government is v contending with a large number of economic. technical and institutional difficulties. Of these, weak management and implementation capacity are emerging as particularly important constraints. The key economic and financial management agencies are seriously understaffed and suffer from shortcomings in organization and financial resources to purchase necessary equipment. In particular, policy analysis, public investment planning, budgetary control, aid coordination and debt management functions need to be strengthened urgently. Economic and financial manage.ment information systems need upgrading to improve policy making. The supply of professional skills to the civil service must be augmented substantially, while excess staff at the lower levels need to be retrenched. Recognizing that as the structural adjustment program gathers momentum, already overloaded economic management institutions will be placed under increasingly severe pressure, the Government has made public sector management reform a key goal. 3. Proiect Obiectives. The project's immediate objective is to facilitate implementation of the Structural Adjustment Program, while its long-term goal is to rebuild the Government's capacity to efficiently manage the economy. Specifically, the project would (a) strengthen the capacity of core agencies, especially the Ministry of Finance and Economic Planning (MFEP), to formulate and implement economic policies in pursuit of structural adjustment objectives; (b) increase public sector productivity by supporting Government's efforts to overcome the skilled manpower shortages, rationalize civil service management and retrench surplus staff over 1986-88; and (c) provide policy-makers with timely information on the impact of reforms on the welfare of different population groups. 4. Project Description. The project would support: (a) establishment of a policy advisory staff under the Secretary of MFEP; (b) creation of a unit within the office serving the Head of State and the Government charged with processing of economic policy decisions and aid agreements; (c) expansion of MFEP's capacity to undertake public investment programming, budgeting, expenditure forecasting and control, revenue collection, debt management and aid coordination; (d) execution of a staffing and functional review of the civil service and a related salary policy review, and establishment of a sound personnel management system, through the office of - 2 - the Head of the Civil Service (OHCS); (e) design of a coherent staff redeployment program and support for redeployment and training activities; (f) provision of studies and advisory services in support of critical structural adjustment program tasks, carried out by mobilizing skilled Ghanaians wherever possible from outside the public service through a skills mobilization scheme; and (g) implementation of a living standards measurement survey. Overall guidance to project management would be provided by the Government's Structural Adjustment Program Teem. A project director responsible for day-to-day project operations has been appointed to head a newly-formed Project Management Unit. The project, to be implemented over seven years, would finance both local and international consultants, in-country and overseas training, office equipment and vehicles (including operation and maintenance). The total cost of the project is estimated at US$14.1 million, including a foreign exchange component of US$8.9 million or 63 percent of the total. Financing would be provided by the proposed credit, a grant of US$1.1 million from ODA(UK) for the civil service and training components and by US$ 2.2 million from the Government. The Government's contribution includes US$1.2 million financed through proceeds from the sale of PL480 Food for Peace. UNDP co-financing for the economic planning and training components is under discussion. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement, and the disbursement schedule are shown in Schedule B. A timetable of key project processing e-vents and the status of Bank Group operations in Ghana are given in Schedules C and D, respectively. The staff appraisal report, No. 6693-GE dated March 20, 1987, is also attached. 5. Rationale for IDA involvement. There is little prospect that the Government can successfully implement the SAL (and proposed IHF SAE and EFF) -- especially the specific conditions on public expenditure, including investment planning-- in a timely manner, without assistance of the type proposed. In addition, the project is designed to strengthen Ghana's institutional capacity in economic management, and its long-term objectives are therefore central to the Bank's country strategy and lending program. The SAL program, the proposed public enterprise reform project, and the proposed project together represent a coherent approach to public sector management reform. IDA is also the lead agency in attracting co-financing for the reforms. 6. Agreed Actions. The Government and IDA have agreed on the following conditions of effectiveness: (a) all conditions precedent to the effectiveness of the Structural Adjustment Credit agreements would be fulfilled; (bl MEEP should assign a training officer to co-ordinate the training to be carried out under the economic management sub-components; (c) IDA would review and approve the project's first year work program; and (d) Government would approve the skills mobilization scheme. Agreement has been reached with the ODA(UK) on the terms of reference for the staffing and functional review, review of the Civil Service Act, salary policy review, DHCS institutional assessment and preparation of a training and staff development program. In addition, assurances have been received that (a) IDA would be afforded an opportunity to comment on any major changes proposed in the organization, structure and functions of HKEP; and (b) Government would complete a salary policy study not later than November 30, 1987. Government and IDA also have agreed that no disbursements would be made for expenditures for: (c) the skills mobilization scheme until the administrative arrangements for the scheme have been satisfactorily defined; (d) building materials for completing housing for persons to be employed under the skills mobilization scheme until Government submits satisfactory details of the materials required; and (e) contracts entered into after December 31 of each year until review and approval by IDA of the project's work programs for the year. 7. Justification. The project would support a far reaching public sector reform program. In addition to the benefits related to implementation of the Structural Adjustment Program, overall efficiency of the ministries and agencips dealing with economic and public sector management would increase. Improved working conditions, logistical support, higher salaries (from reallocation of budgetary savings from retrenchment), and training opportunities would permit Government to attract and retain more qualified civil servants, particularl7 at higher levels. 8. Risks. There are three risks all of which which the project shares with the Structural Adjustment Program: (a) dependence on the few Government officials who constitute the core economic team; (b) the proposed split of MPEP into separate ministries of Finance and of Planning, which might adversely affect implementation, especially if the resource allocation function (public investment program and budgeting) were divided; and (c) political difficulties in carrying out the civil service redeployment program. Government management weakness would be mitigated by the streamlined project organization already established and by encouraging the hiring of Ghanaian andlor external consultants. The Government has assured IDA that it will be consulted on any proposed major changes in the organization, structure and functions of MEEP. To overcome resistance to civil service reform, Government, with IDA support, is exploring other sources of external assistance to help ease retrenched workers' transition into other productive employment. 9. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President by Ernest Stern Attachments Washington, D.C. March 23, 1987. 4 Schedule A Estimated Costs (USS '000) Local Foreign Total A. Economic Policy and Management Economic Policy Unit 164.8 1,651.2 1,816.0 Economic Liaison Unit 77.2 137.6 214.8 Public Investment Planning 318.8 697.2 1,016.0 Budget and Expenditure Control 37.7 441.9 479.6 Aid Management 47.2 100.8 148.0 Debt Management 25.0 169.1 194.0 Revenue Mobilization 310.2 876.5 1,186.7 Training 127.8 156.2 284.0 Sub-Total 1,108.5 4,230.4 5,339.0 B. Public Sector Productivity Civil Service Management 98.9 622.6 721.5 Redeploy. & Staffing Review 180.1 1,099.7 1,279.8 Salary Policy 17.5 125.5 143.0 Sub-Total 296.5 1,847.8 2,144.3 C. SAC Studies & Advisory Services 1,336.5 728.5 2,065.0 D. Poverty Monitoring 699.4 695.7 1,395.1 E. Project Manaaement 204.7 547.2 751.8 Total Baseline Costs 3,645.5 8,049.6 11,695.1 Physical Contingencies 132.7 430.0 562.6 Price Contingencies 1,470.3 429.1 1,899.4 Total Project Costs 5,248.5 8,908.6 14,157.1 Financing Plan Local Foreign Total IDA 3.0 7.8 10.8 Government 2.2 - 2.2 ODA _ 1.1 1.1 Total 5.2 8.9 14.1 === = _ ==sn -5- Schedule B Page 1 of 2 Amounts and Methods of Procurement 1/ Procurement Component ICB LCB/LIB OTHER TOTAL 1. Consultants' services, studies and PMU staff - - 6.9 6.9 (6.4) (6.4) 2. Training - - 1.0 1.0 (0.4) (0.4) 3. Equipment, supplies 1.7 1.6 0.7 4.0 building materials, (1.7) (1.6) (0.2) (3.5) and vehicles 4. Operating and maintenance - - 2.2 2.2 costs for vehicles and (0.5) (0.5) general services 2/ Total 1.7 1.6 10.8 14.1 (1.7) (1.6) (7.5) (10.8) 1/ Contingencies and expenditures financed by the PPP are included in the amounts shown. IDA contribution is indicated in parentheses. 2/ Includes salaries to civil servants financed by Government. -6- Schedule B Page 2 of 2 Summary Disbursement Schedule (US$ million) CatenoEX Amount of Credit 2 of Expenditure Allocated to be financed 1. Consultants' services 4.63 100 studies, and PHU staff 2. Training 0.36 100 3. Equipment, supplies, housing 2.85 lOOZ of foreign materials and vehicles expenditure and 807 of total expenditures 4. Operating and maintenance costs 0.50 90 for vehicles and servicing of computer equipment 5. Refunding of Project Preparation 0.75 Amount due Advance pursuant to Section 2.02 (c) of Development Credit Agreement 6. Unallocated 1.68 10.77 Estimated IDA Disbursement: US$ million (IDA FY) 1987 1988 1989 1990 1991 1992 1993 Annual 0.6 1.7 2.6 2.6 2.4 0.6 0.3 Cumulative 0.6 2.3 4.9 7.5 9.9 10.5 10.8 -7- Schedule C Structural Adiustment Institutional Support Project Timetable of Key Proiect Processing Events Time taken Lo prepare: 12 months Prepared by: Government and IDA First IDA mission: October 1985 Appraisal Mission Departure: October 24, 1986 Negotiations: March 1, 1987 Planned Date of Effectiveness: June 1987 -8 - Schedlule Pag I of 1 THE SMMA F UBANC EGW M1AT1NS GM 1/ STAr= OF Bl LOaOM AND mA CREDrrS (As of Septber 30, 1986) Loan or Amhmt )/ Credit Fical Iess Cancelatim NLmber Year Bormwer Purpose Bank A Urdisbused 3/ Ten loans and thifrteen credits fully dibused 189.7 107.4 901-l 1979 Republi of Ghana Sen NIB 19.0 0.19 1009-011 1980 pblic of aum Volta ReRion Ag.Dev. 29.5 18.46 1029-l 1980 R blic of Gha Hir iWy 25.0 0.23 1170-GH 1981 Republic o ana Raibmy 29.0 5.99 1327-G 1983 eublic of Ghana =rctruction CWD 9.3 10.44 1342-011 1983 Republic of Ghana Water Supply 13.0 4.3 1373-G1 1983 plic of Qmma &ir Project 11.0 8.29 1393-a 1983 Republic of Quana Reconstmuctin Tlport Cr. 40.0 3.26 1435-GH 1984 Plic of Ghana Eqpor Rehabilitation 40.L 17.03 F09-G 198; Repblic of Gana T t Rehabilitation 35.9 22.01 1436-0H 1984 Reblic of uana Eqort Rehabilitation recmical Assistance 17.1 8.65 1446-a 1984 Republic of Ghana Petrolem Refinery Rehab. and Technical Assistance 6.9 5.19 149B-aH 1984 Repblic of Ghana Second Oil Palm 25.0 22.56 1564-a 1985 Plic of Gana Accra District Rehab. 22.0 20.73 1573-GH 1985 Republic of Ghana Second Reconstruction Taports Credit 60.0 29.45 A003-GH 1985 Republic of Ghana Second Reconstruction Tuports Credit 27.0 25.6 1601-GH 1985 Republic of Ghana Road Rehabilitation and Mbintenance 40.0 44.02 ADO1-a 1985 Republic of Ghana Road RehabilitaLion and Maintenance 10.0 9.83 162B-GH 1986 Republic of Ghana Power Systen Rehabilitation 28.0 31.04 1653-C. 1986 Republic of Ghana Health and Education Rehabilitation 15.0 13.45 1672-al 1986 Republic of Ghana tndustrial Sector Adjustenmt Credit 28.5 23.21 A)13-al 1986 Republic of Ghana Industrial Sector Adjustment Credit 25.0 18.08 1674-GH 1986 Republic of Ghana Ports Rehabilitatimn 4/ 24.5 27.8 Total 189.7 688.2 369.19 of which has been paid 74.4 5.4 Total now cutstanding Vl=. 632. Anmount sold 0.4 of which has been repaid 0.4 0.0 Total now held by Bank & IA 119.3 682.8 Total undisbursed 0 369.19 369.19 1/ Ihe status of the project listed in this part is described in a separate report on all Bank/ IDA-financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. 2/ Prior to exchange adjustments. 3/ Calculated at the exchange rate applicable on September 30, 1986. 4/ Not yet effective as at Septenber 30, 1986. I