FEATURE: HIPC's $2.2 Billion: What Did Ghana Agree to Achieve With It?

Ghana is set to benefit from a $2.2 billion external debt relief from adopting the HIPC initiative. In return Ghana has to spend a major part of its future budgets on social service programs, mostly Education and Health and in addition divest some state-owned enterprises. The World Bank / IMF is to monitor the level of poverty reduction to be achieved by Ghana, commensurate with the level of external debt relief received.

Now, the question is what has Ghana agreed to achieve with this $2.2 billion by way of Education and Health improvements in the country and what are the extra steps being taken to make all transactions transparent? And when does the country plan to get out of HIPC? It is one thing to let the world know that the country is to receive this level of assistance which equals what 22 other countries received but another thing to let the world also know what is to be achieved with such an amount at the end. This way all of us, Ghanaians, can stand up in the end and say to the rest of the world, ala John Ruskin: “See! our newly found democracy and the NPP government under President Kufuor did this for us”

Frankly, this is a lot of money for any one country. It appears to be more than Ghana’s total budget for 2001. This relief, coupled with the newly found democratic atmosphere prevailing in the country will certainly help to lower Ghana’s borrowing cost in the external financial markets according to a rating agency’s1 criteria for the cost of capital to sovereign states. Most of the other countries had between 1/3 to 2/3 of their foreign debts forgiven, according to the “Financial Impact of the HIPC Initiative --- First 23 Country Cases”2. And given the size of Ghana’s external debts that dwarfed the other 22 countries’ debt, the Ministry of Finance must have done a good job in securing anything beyond the minimum 1/3 ($2 billion) of its $6 billion external debt, which seemed more likely. Bravo!

The Interim Poverty Reduction Strategy Paper3 (IPRSP) provided by the Ministry of Finance, Government of Ghana in June 2000, to the World Bank on which the $2.2 billion write-off was based, indicates that Ghana is to spend 14.4% of its 2001 budget on education. Health was allocated 4.8% and 13.9% was for the servicing of its external debt in 2001. Ghana budgeted approximately $200 million for education in 2001. Technically, Ghana should be receiving about $60 million in relief a year if it was servicing all the $6 billion debt now, which is roughly a third of the 13.9%. It now appears that the relief is being front-ended. For the number being thrown around for this year is around $300 million, which is greater than 13.9% of the budget if we assume that the $200 million for education was the 14.4%. Therefore it will take at least seven (7) years in HIPC for Ghana to use up the $2.2 billion at the rate of $300 million a year.

If the three to one budget allocation relationship between education and health from the IPRSP holds here, then an additional $220 million and $80 million will be going into education and health programs respectively, each year. Thus based on the 2001 budget, education gets $400 million and health $150 million a year in total for the estimated duration (7 years) of HIPC.

First, let us take a look at some statistics from the state of education in the country. According to the IPRSP 84% of primary school age children are in school. Also the country has room for only 35% of the children who seek admission to the senior secondary school (average age 15). Above all, there is a two-year wait to get into the universities. What is the action plan here? How do you compete in the New World order where the countries you are competing with have Senior Secondary School enrollment greater than 90% and primary school enrollment of 99.9%? Primary school enrollment should top 99% at the end of HIPC with food incentives to the poor areas. The hope here is that with a windfall of about $220 million a year Ghana will achieve: 65% senior secondary school enrollment immediately and 95% at the end. Running the senior secondary schools on second shift from 2 p.m. to 7 p.m. for the students who live around the schools without regard to their BECE grades can do this. The masters should be compensated (wages for classes actually taught in a month and not salaries) for this instead of teaching their own extra classes for cash to the regular students. The two-year wait to enter the universities should be cleared within six years by using: portable classrooms, calling on retired professors, those in the Diaspora, and others who are in the workforce but can teach at these levels to help out.

On the Health side the windfall is about $80 million a year in addition to the initial $70 million budgeted. One cannot help but be stunned by Ghana’s infant mortality rate before age 5 in the Ministry of Finance’s IPRSP. Out of 1,000 new babies born in Ghana, 108 die before age 5, compared to 30 out of 1,000 in Portugal and 11 out of 1,000 in the USA. Clearly Ghana can use some improvements here. The hope is that the Ghanaian mid-wives, the pediatric ward nurses and the doctors voices will be what the World Bank /IMF will hear when they sit down to work out the details as to how to fix such a problem. Hopefully, Ghana can bring this statistics down to at least Portugal’s level of 30 out of 1,000 at the end of HIPC. AIDS is another program that needs attention. Nothing short of “Scared Straight” type of public education tactics are needed here. Examples from South Africa for various socio-economic groups on videotapes should be made available to the Ghanaian public.

Some financial institution divestitures were supposed to accompany the $2.2 billion relief. SSNIT’s problems defy simple solutions. They are problems that have plagued a lot of countries lately. The only suggestion here is to look for solutions in places like Nobel Laureate (Economics) Franco Modigliani’s recent paper “A Better Solution to the Social Security Crisis: Funding With A Common Portfolio”4 . It was written for the system in the USA but it has a lot of implications for Ghana. It addresses the problem of imprudent investments. It assumes the country has a viable and efficient financial market in its recommendations so it may even help with the development of Ghana’s financial markets.

Hopefully, the World Bank was able to include the Ghana Commercial Bank (GCB) and the State Insurance Corporation (SIC) for divestiture. The two institutions need to go but the thrust should be towards decentralization. They get to compete against the private banks and insurance companies that risks private capital instead of the state’s resources on equal footing. In addition they get to pay taxes to the treasury. May the best run ones survive. The banks should be sold on individual basis with loose regional affiliations. The bank workers and the locals should own a baby GCB in Kintampo. They are more in tune with the local banking needs. The SIC should be broken up on regional basis, owned and operated within the regions. For lack of initial adequate capital to support such breakups, the baby GCBs and SICs can form cessionary pools to atomize the risk and share professional resources for some time before they go true solo.

There is free help available to the government towards accomplishing the breakups in the many resumes it has on file. This help can accomplish about 80% of this work for next to nothing before it calls in the high-priced consultants.

Talk of transparency brings back an old joke that made the rounds a few years ago. It went like this: “ A Ghanaian in the Ministry of Public Works befriended a colleague from Uganda during an international conference. He later visited the friend in Uganda. He found the friend had a huge and beautiful house. When the Ghanaian asked how the Ugandan could afford such a house his host took him to a nearby window, pointed out a six-lane highway that runs by the house and said “See that highway, 10%”. A couple of years later the Ugandan visited his counterpart in Accra. They drove to the Ghanaian’s brand new house. It was twice the size of the Ugandan’s and more beautiful. When the Ugandan asked how his friend could afford such a house, the Ghanaian took him to a nearby window. He said “See that highway”. At that time the Ugandan cut in and said “ All I see is a gravel road”. The Ghanaian then said, “Good, 100%”.” Once again, this is only a joke!

President Kufuor has reiterated his zero tolerance policy for corruption over and over again. But he cannot guarantee any human being’s behavior except his own. The late U.S Supreme Court Justice Louis D. Brandeis once wrote that “The best disinfectant is sunshine”. This is a lot of money coming to the system and given what is playing out in the fast-track-court now, the parliament and NPP government need to use extra care here. What about parliament insisting that all appropriations for education and health during HIPC be published and disseminated to the public. What about inserts in the “The Daily Graphic” and “Times” to announce the programs have been initiated in a district, what is to be achieved, and how much and when the District Chief Executive will receive the funds. Then each District Chief Executive can publish his/her own financial statement at the end of the year for his constituents. This way all of us can measure how well the Chief Executives in our districts are doing. Doing this will be a lot cheaper than $1.3 million, if you get the drift.

Also the parliament and the government need to look carefully at and update a system that pays its top executives such as ministers, who have the authority to bind the government in contracts that run into millions of dollars, less than $6,000 a year. This is truly at odds with most international market compensation standards. Besides the professional qualifications of these executives, at such positions: the job requirements, job performance and expected output must be adequately compensated for. This is not to hold brief for anyone who instead of speaking up against inadequate pay rather resorts to other means to make money.

As some of us head home in the coming week for the “Home-coming Summit”, all we hope for is substance over pizzazz. Certainly a more productive week will help propel our country forward.

F. Yaw Berkoh “Aprim” Nketia, Financial Actuary
Cincinnati, Ohio
yawberkoh@yahoo.com

References:
(1)http://www.standardandpoors.com/ResourceCenter/RatingsCriteria/Sovereigns/index.html
(2) http://www.worldbank.org/hipc/Financial_Impact_end_June.pdf
(3) http://poverty.worldbank.org/prsp/index.php?view=ctry&id=66
(4) http://web.mit.edu/economics/www/wel/columns/archive/2-2001/col42-2001.html