40322 INTERNATIONAL MONETARY FUNDAND INTERNATIONAL DEVELOPMENT ASSOCIATION REPUBLIC OF GHANA EnhancedHeavilyIndebtedPoorCountries(HIPC) Initiative CompletionPointDocument Preparedbythe Staffs ofthe International Monetary Fundand the InternationalDevelopment Association Approved byBenedicte Vibe Christensen andJuha Kahkonen (IMF) and Callisto Madavo and Gobind Nankani (IDA) June 15. 2004 Contents Page Executive Summary....................................................................................................................... 3 IIntroduction................................................................................................................................. 5 IIAssessmentofConditionsforReachingtheCompletionPoint................................................ .. 6 A.Ghana's PovertyReduction Strategy............................................................................... 8 B.Macroeconomic Performance,2002-03 ........................................................................... 9 C.Key Structural Policies, Social Sector Reforms. andFloating Completion Point Conditions........................................................................................................................... 11 III.Deliveryofdebtreliefandlonger-termdebtsustainability.................................................... 14 A.DataReconciliation........................................................................................................ 14 B.Status ofCreditor Participation...................................................................................... 15 Multilateral Creditors............................................................................................ 15 BilateralandCommercial Creditors ..................................................................... 15 C.UpdatedDebt SustainabilityAnalysis............................................................................ 17 ExternalDebt Situation at end-2003..................................................................... 17 Debt Sustainability. 2004-2023............................................................................. 18 D.Sensitivity Analysis andLongTermDebtSustainability .............................................. 19 Scenario 1:Terms o ftrade shock.......................................................................... 19 Scenario 2: A reduction of external grants............................................................ 19 Scenario 3: Lower growth..................................................................................... 21 IV.Conclusions............................................................................................................................ 21 V.Issues for Discussion............................................................................................................... 22 - 2 - Boxes 1.StatusofTriggers for the HIPCFloating Completion Point...................................................... 6 2. Poverty-Related Expenditures. 2001-2004 .............................................................................. 10 3. Macroeconomic AssumptionsUnderlying the Debt Sustainability Analysis at the Completion Point....................................................................................................................................... 18 Figure 1. Sensitivity Analysis. 2004-2023 ............................................................................................ 20 Tables 1. SelectedEconomic andFinancial Indicators. 2001-23........................................................... 25 2. Balance ofPayments. 2000-23................................................................................................ 26 3. Central Government Budgetary Operations andFinancing. 2000-23..................................... 27 4. H P C Initiative-Assistance Under aProportional Burden-Sharing Approach .................... 28 5 Comparison ofDiscount Rate andExchangeRateAssumptions at end-2000 andend-2003.......................................................................................................................... 29 6 Comparison ofNet PresentValue ofExternal Public Debt BetweenDecisionPoint 7 Nominal andNet PresentValue of External Debtat Completion Point, end-2003...............30 and Completion Point ............................................................................................................ 31 8. External Debt ServiceAfter FullImplementation o fDebt-Relief Mechanism ..................... 32 9. Net PresentValue o fExternal Debt, 2003-2023 .................................................................... 33 10.External DebtIndicators. 2003-2023..................................................................................... 34 11.SensitivityAnalysis, 2004-2023 ............................................................................................ 35 12.Delivery o fIDA AssistanceUnderthe EnhancedHIPC Initiative, 2001-2023 ..................... 36 13.Delivery o f IMFAssistance Underthe EnhancedHIPC Initiative........................................ 37 14.Statuso f Creditor Participation Under the EnhancedH P C Initiative................................... 38 15.Paris Club Creditors' Deliveryof Debt ReliefUnderBilateral Initiatives Beyondthe 16.H P C Initiative....................................................................................................................... 40 H P C Initiative: Status of Country Cases ConsideredUnderthe Initiative, end-May2004..41 Appendix 1. DebtManagementAssessment ................................................................................................ 23 - 3 - EXECUTIVE SUMMARY InFebruary 2002, theExecutiveBoardsoftheIMFandthe IDAagreedto support a comprehensive debt reductionpackage for the Republic o f Ghana under the enhanced Heavily IndebtedPoor Countries (HIPC) Initiative. At that time, a set of floating triggers was agreed for Ghana to reach the completion pointunder the Initiative. This paper assesses Ghana's progress inmeetingthose triggers, andseeks the Boards' approval ofthe completion point, including a waiver o f one o f the completionpoint triggers. At the decisionpoint, debt reliefrequiredunder the enhanced HIPC Initiativeto lower the net present value (NPV) of debt-to-government revenue ratio to 250 percent was estimated to be US$2,186 million. This relief represented a 56.2 percent reduction indebt, inNPV terms, after the full use o ftraditional debt reliefmechanisms. IntheviewofthestaffsoftheIMFandtheIDA,Ghanahasmadesatisfactoryprogressonthe implementation o fthe conditions for reaching the floating completion point: a A PovertyReductionStrategy Paperwas prepared, andhasbeenimplementedover the past year; a Macroeconomic stability has beenmaintained; and a Allbutone ofthe keystructuralreforms and social measuresmonitored underthe framework have been met. The trigger that was not met relates to the implementation o f an automatic adjustment formula for petroleum pricing. Inlightofadditionalinformationreceivedfromcreditors andanewreconciliationofexternal debt to end-2003, the staffs have revisedthe DSA that was presented at the time o fthe decision point for Ghana. This new reconciliation exercise revealed the need for a minor change to update the database used for the decision point, but this does not implya needto revise the commonreduction factor o f 56.2 percent. As o fMay 2004, satisfactory financing assuranceswith respect to creditor participation inenhanced HIPC assistance for Ghanahave been obtained. The revisedDSA shows that Ghana's external debt is likely to: a remain sustainable over the projectionperiod (2004-2023), with the NPV o f the external debt-to-exports ratio showing a steep decline from levels above 200 percent at end-2003 to fairly stable levelsbelow 125 percent, andthe NPV of external debt-to government revenue declining from 350 percent to 118 percent over the same period; and a remainrobust to moderate country-specific shocks, even o f a persistent nature. However, the sensitivity analysis also suggests that ifGhana were affectedby permanent adverse shocks, or a combination of shocks, debt sustainability could once again be compromised. - 4 - Overall policy implementation bythe Ghanaian authorities since the decision point has generally been satisfactory, although the nonobservance o f the trigger on the automatic adjustment o fpetroleumprices signals a weakness instructural policies. However, the staffs believe that the fbndamental reform o fpetroleum pricing to which the authorities have committed will address the problems inthis area, most importantly, by eliminating the government's involvement inthe price-setting process. - 5 - I.INTRODUCTION 1. InFebruary2002, the ExecutiveBoardsofthe InternationalMonetaryFund (IMF)andtheInternationalDevelopmentAssociations(IDA) agreedto supporta comprehensivedebt reductionpackagefor the Republicof Ghanaunderthe enhanced HeavilyIndebtedPoorCountries(HIPC) Initiativeat the decisionpoint.' At that time, a set o f floating triggers was established for Ghana to reach the completionpoint. This paper assesses Ghana's progress inmeeting those triggers, and seeks the Boards' approval o fthe completion point, including a waiver o f one o fthe completion point triggers. 2. At the decisionpoint, debt reliefrequiredunderthe enhancedHIPC Initiativeto lower the netpresentvalue (NPV) of debt-to-governmentrevenueratioto 250 percent was estimatedto beUS$2,186 million?This reliefrepresented a 56.2 percent reductionin debt, inNPV terms, after the full use of traditional debt reliefmechanisms. The Boards also agreed to provide Ghana with interim assistanceto cover part o fthe debt service falling due to the IMFandIDAuntilGhana reached the floating completion point. The IMFprovided interim debt service relief inan amount equivalent to SDR 25.1 millioninnominal terms betweenFebruary2002 andMay 2004, while IDAprovided interim relief amounting to US$ 98 million over the same period. Inaddition, boththe AfDB and the EU/EIBprovided interimreliefinthe amount o fUS$ 52 millionandEUR4.7 million, respectively. 3. Therest o fthe paper is organized as follows. Section IIdiscusses Ghana's performance inobserving the requirements for reachingthe floating completion point under the framework, including implementationo fthe nationalpoverty reduction strategy. Section IIIdescribesthedeliveryofdebtreliefandlonger-termdebtsustainability,whilethe conclusions are summarized insection IV. Section V presents some issues for discussion by Executive Directors inconsideringthe staffs' proposal to bringGhana to the completion point. ' See http://www.imf.orrr andhttp://www.worldbank.orrr/hipc,Ghana-Enhanced Heavily Indebted Poor Countries (HIPC) Initiative DecisionPoint Document, February 2002. InApril 1997,thefiscalrevenue/openness criteriawereestablishedto allowforthepossibilitythat, for countries such as Ghana with a highexport base, reaching the debt-to-export criteria targets may still leave the country with an unsustainable external debt burdenrelative to government revenue. In order to qualify for this window, a country must have an export-to-GDP ratio o f at least 30 percent, and a fiscal revenue-to-GDP ratio of at least 15 percent, usingan average o f the last three years o f actual data. With an export-to-GDP ratio o f 37 percent and a fiscal revenue-to-GDP ratio o f 17 percent, Ghana qualified for debt reliefunder the fiscal revenue/openness criteria, which provides significantly more relief than usingthe debt-to-exports ratio. - 6 - 11. ASSESSMENT OF CONDITIONS FORREACHING THE COMPLETIONPOINT 4. Ghana has made satisfactory progress on the implementation of the conditions for reaching the floating completionpoint (Box 1). To reach this point under the framework, Ghana committed to: prepare a Poverty ReductionStrategy Paper and satisfactorily implement the strategy for at least one year; maintainmacroeconomic stability; andundertake keystructural reforms andsocial measuresmonitoredunder the Initiative, as agreed at the decisionpoint. As detailed below, all but one o fthe specifiedtriggers have been met. The trigger that was not met relates to implementation o f an automatic adjustment formula for petroleum pricing. This is an important structural measure, andthe case for proceeding to the completionpoint despite its non-implementation is set out insection D.C. Box 1.Ghana: Status o fTriggers for the HIPC Floating CompletionPoint Triggers Status PRSP.Preparation of a full PRSP and satisfactory Met. The full PRSP was finalized and sent implementation for at least one year, as evidenced bythe joint to the IMFand IDA inFebruary 2003 and staff assessment o f the country's annual progress report. discussedby the IMFand IDA Boards in May 2003. The 2003 PRSP Annual Progress Report was completed inMay 2004 andthe Joint Staff Assessment submittedto the Boards inJune 2004. Macroeconomic stability. Continuedmaintenance o f Met.A new-three year PRGF arrangement macroeconomic stability as evidenced by satisfactory was approved inMay 2003 andthe first implementationo f the PRGF-supported program. review completed inDecember 2003. The second review is planned to be completed in June 2004. Use of budgetary savings. The use o f budgetary savings from Met.The tracking systemis inplace and interimdebt service reliefhave beenusedinthe priority areas and HIPC relief is additional to budgetary monitored inthe framework for poverty reduction expenditures. spending, mostly on basic infrastructure and Information onthe use o fthese savings and onpoverty social sectors. The 2003 PRSP Annual expenditures hasbeenpublishedintime to be considered ina Progress Report provides information on public review o f GPRS implementation, as input to the annual use o f the resources and onpoverty-related progressreport on the GPRS. The increase intotal spending on expenditures. these priorities must equal or exceed HIPC relief (less reliefused for domestic debt reduction) during the interimperiod. Governance Procurement reform. Regulatory and oversight body to Met. InDecember 2003, Procurement Act implementnewprocurement code hasbeenestablished. was passedbyparliament. Members o f the Public Procurement Board were appointed b the President and their inaugurationi s planned for June 2004. The position o fChiel Executive o fthe Secretariat o f the Boardhas already been advertised and selection to fill the position i s expected by the endo f July - 7 - 2004. MOEFP has already instructed public ?rocurement bodies to form EntityTender Committees. Internal audit. Operational internal audit capacity has Met. Existing positions are filly staffed, but beenestablished through fillstaffmg o f existing internal quality o f internal audit remains weak. audit positions. InternalAudit Act, approved inDecember 2003, aims to improve quality and managemento f audit function. Members o f the Internal Audit Agency Board were appointedby the President andtheir inauguration is planned for June 2004. The position o fDirector General o fthe L4A has already beenadvertised and selection to fill the positionis expected bythe end o fJuly 2004. Public expenditure management Reports on cashexpenditures and commitments by Met. Newcashmanagementand MDAs, classifiedby function, havebeenpublished commitment control system implementedin monthly inthe government gazette, following all ministriesby end-December 2003. New implementation o fnew reporting system. reporting systemimplementedand reports are publishedinthe monthly gazette. 0 A computer-based financial managementinformation Met.Systemhasbeeninstalled onapilot system to underpinthe new expenditure reporting system basis at the MOF, CAGD and the Accra- has beeninstalled on a pilot basis inthe Ministryo f based opergtions o f the ministries o f health, Finance, CAGD, and at least two key sector ministries. education, and roads andtransport (albeit with partial functionality). The systemwill berolled out to another four MDAs by early 2005. Decentralization of government functions 0 Devolutiono fresponsibilities to local districts, as Met. Local Government Services Act was evidenced by (i) submission to Parliament o f a local passedbyparliament inDecember 2003. service billto enable the decentralization o f human District composite budgetsprepared inthree resource management to local authorities; and (ii) pilot districts (Dangme East, Dangme West, development o fDistrict Composite Budgets inpilot andAkwapim North). districts. Education The primarygross enrollment rates for girls has Met. Inthe 2002/2003 academic year, the increased from 72 percent in2000 to 74 percent. primary gross enrollment rate for girls reached almost 78 percent. Health The percentage o fhouseholds withaccessto safe water Met.Ruralwater coverage is estimated at has increased from 40 percent in2000 to 46 percent in 46.4 percent in2003. rural areas. Recurrent health expenditures at district and lower level Met.Estimatedshareofrecurrent health governments have risen from 42 percent o fthe total expenditures at district and lower levels recurrent healthbudget in2000 to 45 percent. reached 49.6 percent in2003. - 8 - Energy Sector An automatic price adjustment mechanismhasbeenput Not met.Pricing formula was put inplace in inplace andimplementedmonthlytoreflectchangesin 2003buthasnotbeenimplemented.Anew intemational marketprices inlocal currency inthe regulatoryregime that will give freedomto petroleum sector, and includes all taxes incorporatedinto oil marketing companies to set prices the adjustment formula at end-March 2002. (according to a prescribedformula), and that credibly removes government mfiuence over pricing decisions, will be announced by Cabinet inJune 2004. The new regime is expected to become effective onFebruary 15,2005. A strategy for achieving full economic pricinginthe Met. Strategy established andimplemented electricity sector, including lifeline pricing to ensure since August 2002. affordability for low income users, has been implemented. A. Ghana's PovertyReductionStrategy 5. Followingextensiveconsultationswith civilsociety andother stakeholders,the authoritiesfinalizedthe GhanaPovertyReductionStrategy(GPRS) in February2003. Based on its analysis o fthe determinants andlinkages to poverty, the GPRS set out five pillars-macroeconomic stability, production and employment, humanresource development, special programs for the vulnerable and excluded, andgovernance-on which the government wouldbase its strategy for poverty alleviation. Thejoint staff assessment (JSA) o fthe GPRS concluded that the policies contained inthe GPRS provided a sound framework for implementingthe government's anti-poverty agenda.3 6. Implementationofthe GPRSwas broadlysatisfactoryduring2003, as described inthe AnnualProgressReport(APR).4The APR was preparedbythe government with technical assistance from bilateral donors, andactively involved national inter-agency povertymonitoring groups. Using a wide set o f financial, economic and social indicators, the APR suggestedthat goodprogress was madeon several fi-onts, while notingweaker performance insome others. The report highlighted, inparticular, improved macroeconomic performance, and increased alignment ofthe GPRS with the budget formulation. The report acknowledged, however, the continuation o f costly quasi-fiscal activities (inpetroleum and utilitypricing), the poor delivery o fsome social services, andthe deteriorationo fsome health See www.imf.org and www.worldbank.org, Ghana-Joint Staff Assessment ofthe Poverty ReductionStrategy Paper, March2003. See Ghana-Joint StaffAssessment ofthe Annual ProgressReportofthe PovertyReduction Strategy Paper, June 2004, EBD/04/60 andIDA ReportNo. 29181-GH. - 9 - indicators (infant, and under 5-mortality rates). Inthese areas, the APR recommendedmid- course policy corrections, inthe context ofthe overall ~trategy.~ 7. Poverty-related expenditure inGhana has been significantly increased since the GPRSwas established (Box 2). Such spending in2003 was 2percent ofGDP higherthan in 2001, exceeding the annual amount o fHIPC relief provided.6 Spending for basic education andhealthcare expandedthe most rapidly, confirmingthe strategy's emphasis on social service delivery indeprived regions andfor vulnerable groups. 8. Lookingahead, the authorities have stated their intention to extend the GPRS analytical framework, and if necessary augment future poverty spending, with a view to achieving the MillenniumDevelopment Goals (MDGs). Ghana appears poisedto meet many o fits MDGs, although an updated analysis o fthe incidence ofpoverty, andan investigation into factors underlyingan apparent deteriorationinkeyhealthcare indicators, needto be ~ndertaken.~ Ongoingwork to cost the MDGs, alongwith a review ofthe medium-term health expenditure strategy, will form inputs for a possible expansion ofhealth care spendingfrom 2005 onward; an increase o f around 1percent of GDP could be accommodated withinthe existingmacroeconomic framework, evenwithout additional donor assistance. B. MacroeconomicPerformance, 2002-03 9. Macroeconomicperformance has strengthened since the decision point (Table 1).The rate o feconomic growth in2003 was 5.2 percent (one percentagepoint higherthan in 2001) andreal per capita incomes increased at the fastest pace ina decade. Near-record cocoa productionhas beenthe drivingfactor behindrecent activity, highlightingthe economy's ongoing reliance on this commodity for economic prosperity. Inflation developments have been uneven over the past year, largely on account o f a one-time adjustment o fpetroleum prices, butthey have been more favorable recently. ByApril 2004, 12-month CPI inflation slowed to 11.2 percent from over 23 percent at end-2001. The external sector has performed well over the two-year period, with a surplus emerging inthe current account (including official grants) in2002, andreaching 1%percent of GDP in2003. Strong foreign inflows from cocoa andgold exports, andpersonalremittances, havebroughtgross international For details, see Table 1.4 inthe Annual Progress Report o f the GPRS. 6HIPC reliefis measuredas total reliefprovided less that portion that Ghana wouldhave received under traditional mechanisms. As indicated inthe decision point document, 20 percent ofHIPC relief, so defined, would be usedto reduce domestic debt and 80 percent to raise poverty-related spending. Ghana's progress towards meetingthe MDGs is detailed inChapter 9 o f the Annual Progress Report ofthe GPRS. - 10- reserves to about 4 months o fimports at the endof last year, compared with only 1.2 months at the endo f 2001. Box 2. Ghana: Poverty-RelatedExpenditure,2001-2004 (InpercentofGDP, unlessotherwisespecified) 2001 2002 2003 2004 Act. Est. Prov. Proj. Totalpoverty-relatedexpenditures 4.5 4.8 6.5 6 9 (As apercentoftotalgovernment expenditure) 13 9 18.3 22.3 24.5 Basiceducation 2.8 2.8 3.6 3 3 Fvimaryhealthcare 0.7 0.6 1.0 1.5 Agriculture,poverty-focused 0.1 0.2 0.2 0.2 Ruralwater 0.0 0 1 0.1 0.2 Feederroads 0.2 0 3 0 5 0.4 Ruralelectricity 0.0 0.1 0.1 0.2 Other poverty-relatedexpenditure 0.6 0 7 1.2 1.0 HIPC reliefnotyet allocated 0.0 0.0 0.0 0.1 Memorandumitems: HIPC reliefI/ 1.2 1.4 1.5 Totalgovernmentexpenditure (billionsofcedis) 12,451 12,753 19,157 22,307 NonrinaiGDP(billionsof cedis) 38,071 48,862 66,158 78,650 Sources: Ghanaianauthorities,andstaffestimatesandprojections 11Excluding20 percent ofreliefthatis allocatedto domestic debt reduction 10. Macroeconomic stabilization reflects, inlarge part, the strong fiscal consolidation in2003. During2002, weaknesses incontrol over the wage billandpetroleum subsidies ledto fiscal overruns. Fiscal discipline improvedmarkedly in2003, however, and net domestic borrowingbythe government was eliminated. This implied a sharp reduction of domestic debt relative to GDP (from almost 27 percent at end-2001, to below 20 percent), in line with a central anchor ofthe poverty reduction strategy. Efforts to consolidate the fiscal positionhave been supported byrising tax revenue, with improved administration and several new measures. Significantly higherthan expected tax revenue has a favorable impact on Ghana's debt sustainability (see below). Monetary policy continues to aim at price stability, andassuming continued fiscal discipline, is ontrack to reachthe authorities' inflation target of around 7 percent bythe end o fthis year. 11. Onbalance, Ghana's performance under the PRGF-supported arrangement has been satisfactory, and the Fundstaff is recommending completion of the second review under the arrangement. All but one o fthe program's quantitative performance criteria at end-December 2003 were observed. Two structural performance criteria were not implemented, relating to the automatic adjustment o fpetroleum and utility prices. The problems with electricity andwater tariffs have been technical innature, andthe government remains committedto the fillimplementationo f the formulas for adjustment of electricity andwater tariffs. The difficulties withpetroleumpricing, bycontrast, havebeenmore severe, culminating ina government decisioninearly 2004 to refrain from anyprice increase ahead o fthe general election inDecember, over concern for political unrest and social instability. - 11- The institutional weaknesses that have contributedto poor policy implementationinthis area, andthe authorities' proposals for addressing those weaknesses, are discussedinthe next section. As far as the 2004 budget is concerned, the nonadjustment o fpetroleumprices generatesa substantial bill for unplanned subsidies (equivalent to a projected 1.4 percent o f GDP). The fiscal costs o fthese subsidies arebeingmet through higher revenue, a lower debt repayment this year, and spending cuts. These adjustments canbe accommodated inthe program without compromisingthe medium-term domestic debt reduction andpoverty- related expenditure targets. However, the fiscal position is vulnerable to rising oil prices, and a loss of discipline ahead o fthe December election. C. Key StructuralPolicies,Social Sector Reforms, andFloatingCompletionPoint Conditions 12. Over the pasttwo years, the authoritieshavemadegenerally satisfactory progressinstructuralandsocial sector reform,as detailedinthe Annual Progress Reportof the GPRS, as well as inthe President'sReportfor the GhanaPoverty ReductionSupportCredit?Inadditionto developingandimplementing a full PRSP for at least a year, andmaintainingmacroeconomic stability under a Fund-supported program, the authorities observed all but one o fthe completionpoint triggers (Box 1above): 0 Governance:The establishment o fa procurement regulatoryandoversight body, and the development o f an internal audit capacity laid the foundation for improving governance andtransparency inthe use o fpublic resources. Inthe area o f procurement, a strengthening o fthe legal framework (Public Procurement Law), and stepped up enforcement o frules andregulations (by the Public Procurement Board that is to be inaugurated inJune 2004) will promote value for money, and accountabilityofpublic institutions. The preparation o fnew standard tender documents anda trainingmanualhas begun, and entities engaged inpublic procurement havebeen instructedto form EntityTender Committees and start processing all procurement inaccordance with the new law. The potential for enhancing the quality andcapacity ofinternal auditing was advanced through the passageo fthe Internal Audit Agency Act. This legislationcreates an institutionwith the mandate to coordinate and raise the standard o finternal audit activities in government ministries, departments andagencies (MDAs). The positionofDirector General ofthe new Internal Audit AgencyBoardhas alreadybeen advertised andis expected to be filled bythe end o f July 2004. 0 Publicexpendituremanagement:Thetracking o fpoverty-relatedexpenditures (including those funded from HIPC relief) andthe monitoring o f GPRS Seethe President's Report for the Ghana SecondPovertyReductionSupport Credit (PRSC 2), IDA- 29177-GH. - 12- implementationhavebeen facilitated by enhancements to public expenditure management. The keyinnovations relate to cash and commitment control of budgetary expenditures inall MDAs; the reconciliation o f fiscal and bankingrecords on a routine basis; anda computer-based financial management information and reporting system (Budget andPublic Expenditure Management System, BPEMS). The implementationo f BPEMS has beenslower than expected, but progressi s now well inhand. The Ministry o fFinance andthe Controller Accountant General's Department migratedto BPEMS inmid-2003. The configuration and setup o f BPEMS inthe Accra-based operations o fthe ministries o fhealth, education, and roads andtransporthas been completed, andthree of the five modulesare now fully functional. The installationo fBPEMS inanother four MDAswill be finalized early next year. 0 Decentralization: The passageof a Local Government Service Law inDecember 2003 devolvedhumanresource management responsibilities to local districts, increasingthe authority and accountabilityo f local governments, andproviding for civil society participation. The process will continue under aNational Decentralization Action Plan, recently endorsedby cabinet, that seeks ultimately to transfer key responsibilities from central M D A s to the Regional Coordinating Councils andDistrict Assemblies. The composite budgets, developed recently on a pilot basis inthree district assemblies (Akwapim North, Dangme East andDangme West), will gradually be extended nationwide, with a view to increasing the transparency of aggregate expenditures at the district level. Education: Performance inraising the gross enrollment rate for girls inprimary education exceeded what was called for under the completion point trigger. Effective targeting ofpolicy interventions also reduced regional disparities ingirls' education, withparticularly marked improvementsinthe three most under-servedregions (Northern, Upper East andUpperWest). Ingeneral, the favorable outcomes reflect the removal o f financial barriers inaccessto education, andimprovement inthe intra- sectoral resource allocation. Implementationo fthe recently approved Education Strategic Planwill contribute to Ghana's achievement o fthe MDGs and "Education for All" goals. Health: Attainment o f the completionpoint triggers for health signals progress in policy implementation, although some health sector outcomes have failed to meet expectations, notably infant-andunder-5 mortality rates. Recent policy initiatives have sought to refocus health resources on under-served regions, includingthrough community-based healthplanning and services, launchingo fregional delivery programs to reduce under-five andmaternalmortality rates, andimplementationo f a needs-basedformula to guide the intra-sectoral allocation o fresources. 13. Progress intackling the structural problems relating to the energy sector has not been as strong as in other areas. Inthe power sector, the strategy for achieving full cost - 13 - recovery with lifeline provisions, to facilitate access to electricity by low-income customers, was launchedin2002. To ensure that electricity tariffs are aligned with current market conditions, an automatic adjustmentmechanismis inplace. The Public Utilities Regulatory Commission (PURC) has been charged with the responsibility o f administering the mechanism, andit has done so, albeit with occasional delays. Progress has also beenmade in laying the foundations for a more stable and efficient supplyof electricity, through the implementation o f a powerreform project approved bycabinet inAugust 2003. 14. The completionpointtrigger requiringthe implementationofthe automatic adjustmentformula for petroleumpriceswas not met. At the time o fthe decisionpoint, the authorities had adopted a pricing formula as a means to ensure automatic adjustment o f prices, with the intention o f depoliticizing such decisions. However, when the formula called for price increases inlate 2002, the government postponed the adjustments untilit became clear that the subsidy cost hadbecome unsustainable. InJanuary 2003, petroleum prices were raised by an average o f 90 percent and, recognizing that the mechanismwas not functioning as intended, the government turned over responsibility for calculating and implementing monthly price changesto a newlyindependent National PetroleumTender Board (NPTB). This limitedreformalso failed, however, as the government intervenedinlate2003 to block requiredprices increases, andthen decided(inearly 2004) that owingto concerns about possible social instability, no adjustmentcould be made ahead o fthe December 2004 elections. 15. These experiencesledthe authoritiesto concludethat a morefundamental reformwas required,to convincethe publicthat governmentwas no longerresponsible for adjustmentsinpetroleumprices.They announced the broad elements o f a petroleum sector deregulation strategy inthe 2004 budget statement, andhave since elaboratedon the new pricing regime they intendto implement. They considered full price liberalization, with anti-trust mechanisms to address concerns over collusive behavior on the part o fthe private oil marketing companies (OMCs). This option, however, was rejected because of the lack of capacity to create anti-trust legislationandinstitutions. Theytherefore decided to give OMCs full authority to makeprice adjustments without prior approval o fanygovernmentalor quasi- governmental agency, but (to address the risk of collusion) requiredthat adjustments be made according to a prescribed formula. Under this regime, the decisions of the OMCs wouldbe subject only to ex post review, by anoversight body on whichthe government wouldbe represented, so as to reassure the public that the pricing formula i s being properly im~lemented.~ 16. InJune 2004, Cabinetis expected to endorse andannouncepubliclythe key featuresof the new pricingregime,andthe detailsareto beincorporatedin a Itis envisaged that the oversight bodyandthe OMCs would also periodicallyreview the parameters of the formula, which couldbe modifiedbymutual consent. - 14- comprehensivepetroleumsector deregulationbillto bepresentedlaterthisyear. The new regime is expected to be implementedbymid-February2005 at the latest, following the election andinauguration o fthe new administration, at which time the political context for the reform should be more favorable. It is critically important that the new regime be implemented as announced, and on schedule. Inthis regard, completion o fthe thirdreview underthe Fund-supported programwill not take place untilafter the new regime is fully implemented. The interests o fthe low-income consumers o fthese products will be taken into account insetting the structure o fpetroleum taxes, which will replace the inefficient and ineffective system o f implicit cross-subsidization that now exists. The setting o fthe taxes willbe informedbythe findings o fa poverty and social impact analysis o fpetroleum pricing which is expected to be completed shortly. 17. The staffsbelievethat the new andpotentiallymorerobustpricingregimewill address effectivelythe weaknesses of previousfailedmechanisms,andwill provide strong assurancesthat future budgets will be insulated fi-omworld oil price fluctuations. Onthis basis, inview o fthe strong performance inother policy areas, and given the conditionality for completion o f the thirdreview under the Fund-supported program, the staff recommends a waiver o fthe related completionpoint trigger. 111. DELIVERYOFDEBTRELIEFANDLONGER-TERM DEBTSUSTAINABILITY A. DataReconciliation 18. In lightof additionalinformationreceivedfromcreditorsandanew reconciliationof externaldebtto end-2003,the staffshave updatedthe DSA that was presentedinthe decision pointdocumentfor Ghana." This new reconciliation exercise revealed the need for minor changes to the databaseused for the decision point but this does not imply a needto revise the common reduction factor o f 56.2 percent.'' The total relief envisioned under the enhanced HIPC Initiative will, therefore, remain at the decisionpoint level, US$2,186 million inNPV terms. 19. At end-2003, Ghana's debt stock inNPVterms was US$5.5 billion,beforethe useof traditionaldebt-relief mechanisms(Table7). Multilateralcreditors accounted for 60 percent o fthe overall NPV, with claims o fthe IDA and the IMFamounting to 43 and 7 percent, respectively. Paris Club creditors represented 34 percent o fthe total outstanding debt, andnon-Paris Club andcommercial creditors 5 percent. Comparedwith the DSA performed at the decisionpoint, this structure shows an increase inthe share o f multilateral 10Approximately 91percent ofthe total debt stock canbe consideredreconciled, compared with 86 percent at the time of the decision point DSA. ''At end-2003, US$ 14million inloans hadnot beenpreviouslyreported bytwo bilateral creditors. - 1 5 - debt o f about 10percentage points, reflecting the predominance o fmultilateral creditors in new borrowing since then. B. Statusof Creditor Participation MultilateralCreditors 20. Requireddebt relieffrom multilateralcreditorsunderthe enhancedHIPC Initiative,as estimatedinthe decisionpointdocument,amountsto US$1,102 millionin 2000NPVterms (Table4). The IMF, IDA, AfDB, andthe EU/EIBhaveprovidedinterim assistance. Other creditors, namely the OPEC Fund, BADEA, NDF andIFAD, have committed themselves to providing their share o f reliefonce Ghana reaches its completion point. Debt relieffrom multilateral creditors represents 50 percent ofthe total, andat the completionpoint, breaks down as follows: IDA,the largest multilateralcreditor, is expected to provide relief amountingto US$ 782 million inNPV terms, via a 67 percent debt service reductionduring2002-2022. IDAprovidedUS$ 98 million ininterimnominalrelief; Debtrelief from the IMFamounts to US$ 112millioninNPVterms, andis expected to be delivered via grants targeted for debt service reduction. The Fundprovided SDR 25.1 million ininterimnominal relief; Debt relief from AfDB i s expected to amount to US$ 131million inNPV terms. Duringthe interimperiodAfDB providedUS$52millioninnominalrelief, mainly deliveredthrough debt service reductionfinanced through the HIPC Trust Fund; The EU/EIB i s expected to provide US$41 milliono freliefinNPV terms, and provided EUR4.7 millionininterimnominal relief; As for the other multilateralcreditors, the OPEC Fundis expected to disburseaUS$ 6 million loan (on concessional terms) at the completion point, to partiallyrefinance existing loans; IFADandNDFare expected to provide 100percent debt service cancellation for a period untiltheir NPV target reliefo f US$ 18 million andUS$5.4 million, respectively, is achieved; andthe precise modalities for delivery o f BADEA's reliefo fUS$ 7.1 million(inNPVterms) are yet to be established. BilateralandCommercialCreditors 21. ParisClub creditorshaveagreedinprincipleto provideassistanceunderthe enhancedHIPCInitiativeofUS$829 millioninNPV terms." Bilateral agreements have 12After the decision point, ParisClub creditors decided to change their cutoff date for Ghana from January 1983 to June 1999.This change significantlyincreasedthe pool o f debt eligble for debt relief. (continued.. .) - 16- been already signed with ten Paris Club creditors. Underthe terms ofthose agreements, Germany, Italy, the Netherlands, the UnitedKingdom, andthe United States have already committed to provide 100percent flow reliefduringthe interimperiod. Japan and Spain provided 100percent rescheduling andCanada 95 percent cancellation. Agreements are pendingwith France, Japan, Norway, and Sweden, but negotiations are well advanced, and these countries have beenproviding interim reliefalong with the rest ofthe Paris Club. Most Paris Club creditors have indicated their willingness, at the completionpoint, to provide debt reliefbeyond that requiredunder the HIPC Initiative. This would provide additional reliefof about US$0.6 billioninend-2003 NPV terms (Tables 6 and 15). 22. Non-ParisClub bilateraland commercialcreditors are expectedto provide treatmentcomparableto that of ParisClub creditors,with assistanceunder the enhancedHIPC Initiativeamountingto US$256 millioninNPVterms. All official bilateral creditors have indicatedtheir commitment to providereliefunder the enhanced HIPC initiative. China has signed an agreement with Ghana that effectively cancelled several loans andthe Saudi Development Fundhas signed a Memorandum o fUnderstanding indicating their intention to providereliefafter the completionpoint. (Duringthe interim period they provided flow rescheduling onNaples terms.) The Kuwait Development Fund has provided stock relief onNaples terms only. Korea and India are still innegotiations with Ghana, although the latter's outstanding claims are minimal. 23, Concerningcommercialcreditors,the Ghanaianauthoritiescontinuetheir best effortsto obtain fullHIPC reliefin accordancewith the principlesof the enhanced Initiative.Some commercial creditors' loans havebeentaken over bythe officialagencies o f their respective countries andtheir debts will be treated under the ParisClub. One Korean commercial creditor (Samsung Corporation) has not agreedto provide debt relief. The loans outstanding, which amounted to US$ 130.3 million at end-2000, are filly collateralizedby proceeds fi-omforeign exchange receivables that are beingdepositedinan off-shore account. Duringthe interimperioddebt serviceto this creditor was paidinatimelymanner.TheDSA assumesthat relief will be providedon these loans. However, since Ghana's debt-to- government revenue ratio after enhancedHIPC reliefi s well below the threshold, other creditor's contributions to the overall debt reliefshould not changeifthis reliefi s not provided. 24. As of May 2004, satisfactoryfinancingassuranceswith respectto creditor participationinenhancedHIPC assistancefor Ghanahavereached89.6 percentof the The new cutoff date allowed Paris Club creditors to provide the necessary relief to the country during the interimperiod. Inline with this change, the relevant HIPC calculations inthe updated DSA are based on the 1999cutoff date, andthe traditional reliefscenarios use the 1983 cutoff date. As a consequence, the decision- andcompletion-point NPVs are not comparable. The change inthe cutoff date does implydebt service that is more back loaded, but the total relief to be deliveredat completion point inNPVterms remains the same. - 17- total assistanceapprovedinFebruary2002, and are sufficientfor grantingirrevocable relieffromthe IMFandIDA at the completionpoint.Multilateral creditors have given assurancesto participate, representing 50.4 percent oftotal debt reliefinNPV terms, as calculated inthe decisionpoint document. Furthermore, Paris Club creditors representing 37.9 percent o f the targetedassistancehave provided assurances o ftheir participation. A numbero fnon-Paris Club creditors havealso agreedto participate buthavenot signed any formal agreements so far. The Ghanaian authorities are actively seeking the official endorsement o f the remaining creditors. C. UpdatedDebt SustainabilityAnalysis ExternalDebtSituationat End-2003 25. The DSAperformedatthe decisionpointhasbeenupdatedjointly bythe Ghanaianauthorities andthe staffsofthe IMFandIDA, on thebasisof loan-by-loan datafor nominaldebt disbursedandoutstandingat end-2003. The exchangerates and discount rates used for calculating Ghana's nominal andNPV debt as of end-2003 are presented inTable 5. 26. Basedon the reconcileddebt data, Ghana'snominalstockof externaldebt beforereliefreachedUS$7.5 billionat end-2003,comparedwith US$6 billionat end- 2000. Thenew external borrowing after the decisionpoint (amounting to US$ 1%billion) is concessional, with most being providedbymultilateralcreditors. 27. InNPVterms, after the assumedapplicationof traditionaldebt relief, Ghana's externaldebt at end-2003 is estimatedat US$5.0 billion, equivalentto 321percentof governmentrevenue(Table 6). The increase over what was projectedat the decision point i s more than accounted for by a reduction indiscount rates and depreciationo f the US dollar. Holdingthese parameters constant, the NPV o fdebt wouldbe lower thanat the decision point, since there has been 3 percent less net borrowing thanwas projected. 28. After the completionpoint, Ghana's debt is expectedto remainbelowthe NPV of debt-to-governmentrevenuethresholdestablishedunder the HIPC framework. Assuming full delivery at end-2003 o f current debt relief committed underthe HIPC Initiative, the NPV o f debt would be expected to fall to US$ 2.9 billion, equivalent to 189 percent o f government revenues and 109percent o f exports o f goods and services (Table 10, panel a).After the completionpoint, Ghana expects to be granted additional relief as indicatedbybilateral creditors; after such additionalrelief, the NPV o f external debt would I be reduced hrther to US$2.4 billion, equivalent to 152percent ofrevenues and 88 percent o f exports o f goods and services. Baselineprojections show that the NPV o f external debt (after bilateralreliefbeyond HIPC) will rise gradually to US$9.1 billion at end-2023 but remain well within sustainable levels (Tables 6, 9, and 10, panelV). - 18- Debt Sustainability, 2004-2023 29. The long-term macroeconomic framework for the completionpoint DSA is broadly in line with the earlier projections at the decision point (Box 3). Real GDP growth is projectedto stay at 5 percent per mum, while inflation is expected to fall to around 5 percent by 2006 andremainthere for the projectionperiod.13Export volumes are expected to grow by almost 4 percent on average, with central government tax revenue remaining at its current level o f about 21 percent o f GDP. Box. 3 Ghana: Macroeconomic Assumptions Underlying the Debt Sustainability Analysis at the Completion Point The baseline assumptions for the period2004-23 include the following: Real GDP growth o f 5 percent per annum; Inflation averaging 5 percent per annum; Export volume growth o f 3.8 percent per annum, while import volumes expand by about 4.5 percent; Central government tax revenue is stable at about 21 percent o f GDP; Non-interest expenditure is projectedto average 12 percent o fGDP; Current account deficit (including grants) o f about 1.4 percent o fGDP; Gross borrowing and official grants are projectedto remainbelow 5 percent o f GDP, on average, withabout one-third of external financing inthe form o fgrants, and the rest fromconcessional lending. 30. The debt sustainability analysis shows that Ghana's external debt will remain sustainable during the projection period. The trajectory o fthe NPV o fthe external debt-to- exports ratio shows a steep decline from levels above 200 percent before the completion point, to fairly stable levels below 125 percent after the completion point. Over the same period, the NPV o f external debt-to-government revenue i s projectedto decline steadily from 350 percent to 118percent (Table 10). Although nominal debt will graduallybuildup at approximately US$ 320 millionper year on a net basis, it i s expected that these new loans will be on concessional terms. 31. Inlinewith the significantstock of debt decline, the debt service-to-export and debt service-to-revenue ratios will reach comfortable levels after completionpoint. Debt service after HIPC reliefi s expected to average 4.7 percent of exports and 6.2 percent o f revenue over the period 2004-23, bothwith stable profiles. These compare favorably with the 10-year average pre-HIPC debt service levels (on a commitment basis) o f 21 and 30 percent, respectively. l3 growthprojection,whichisunchangedfromthedecisionpointdocument, maybeonthe The conservative side inthe near term, gven recent economic performance. - 19- D. Sensitivity Analysis andLongTermDebt Sustainability 32. This section assesses Ghana's debt sustainability sensitivity under less favorable circumstances. Three scenarios are considered: a deterioration inthe terms of trade, related to a drop incocoa prices; a significant decline ingrant financing; and a lower growth outlook, inlinewithhistoricalperformance. Scenario 1: Terms of trade shock 33. Ghana's long-term debt sustainability is sensitive to a sustained decline ofthe price o f cocoa. Cocoa accounts for about one-third o f Ghana's total exports. Inthis scenario, a persistent price drop is assumed to occur inlate 2004, affecting the (pre-sale) o f cocoa exports in2005. The assumeddecline is equivalent to one standard deviation o fhistorical price levels o f the past 20 years, andi s assumed to continue through the projectionperiod. 34. As a result of the lower cocoa prices, total exports would fall byUS$280 millionper annum (5 percent) andgovernment revenue would decline by 0.3 percentage points of GDP per annum, on average. Ifthe financing gap generatedbythis shock were filledwith additional debt on concessional terms, the terms o ftrade deterioration would leadto anNPV o f debt in2023 that is about US$3.2 billion higher thanthe baseline, andhence, higher debt service as percent o frevenue (Figure 1).Although the trajectory o fthe debt stock indicators would remain below HIPC threshold levels, the trend indebt service during later years would have a rapidlyincreasing slope. Scenario 2: A reduction of external grants 35. The second scenario shows Ghana's external vulnerability to a significant reduction in grants as a source of financing. This "shock" is assumed to reduce the grant component ingross financing from about one-third to 10percent, over the projection period. The financing gap createdbythis assumption is filled insteadbyadditionalborrowingon concessional terms. The grant shock would increase the debt stock by approximately US$6.7 billioninNPV terms in2023, compared with the baseline, andthe NPV o fdebt-to-fiscal revenue ratio by 81percentage points to 199percent and maintainapositive slope throughout the period. 36. This sustained reduction of grants would raisedebt service by more than 1 percent of government revenue to 7.6 percent over the projection period. Likewise, debt service as a share o f exports would increase by 1.2 percent to 5.9 percent. Most importantly, inthis event, debt service levels after 2015 wouldtrendrapidlytowardsunsustainable levels. - 20 - Figure1. GhanaSensitMtyAnalysis, 2004-2023 (inpercent) 225 225 NF'Vof Debt to Revenues Ratio -Baseline scenario -Price -- - - - - shock scenario Lowgrantsscenario Lowperformance scenario 200 200 175 175 150 150 125 125 100 100 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 , Wema1Debt Service to -Baseline scenario I/ Revenues Ratio -Price -- - - - - shock scen-0 Lowgrantsscenario Lowperformance scenario 1 ,' I ' 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Sources: Ghanaian authorities; and staff estimates. -21 - Scenario 3: Lower growth 37. Comparedwith the baseline, a scenario of lower growth implies a much more limited reduction of its debt burden, with debt service ratios gradually increasingover the projection period. This scenario assumes a growth path (4 percent per annum)that is broadly consistent with economic performance over the past decade, compared with 5 percent inthebaseline. Lowergrowthinturnaffects government revenue, creating anaverageof 1 percent o f GDP inadditional financing needs per annum. Three-quarters o fthis gap i s assumedto be filled by additional external borrowing, andthe remainder by adjustment. 38. Lower economic growth would lead to an average increase in debt service of almost 1percentagepoints of revenue, and 1.1 percentagepoints of exports. The NPV o f debtwould also increase byUS$3.3 billionat the endo fthe projectionperiod, compared to the baseline, but throughout the period would still remain almost flat andbelow the H P C sustainability thresholds (Figure 1). IV. CONCLUSIONS 39. Debt relief expected at the completion point will help Ghana reach debt sustainability, providedthe country follows sound economic policies. The updated debt sustainability analysis shows that the amount o f debt relief estimated at the decisionpoint will be sufficient to bringthe country's debt burdenindicators to manageable levels andkeep them on a sustainable path duringthe next 20 years. 40. The sensitivity analysis shows that, after completion point, Ghana's debt sustainability would be robust to moderate country-specific shocks, even of a persistent nature. However, the scenarios also suggest that ifGhanawere affected bypermanent adverse shocks, or a combination o f shocks, debt sustainability could once again be compromised. 41. Policy implementationby the Ghanaian authorities since the decision point has been generally satisfactory. All but one o f the completion point triggers were observed. The condition that was not met-i.e., that relating to petroleum pricing-signals an important weakness instructural policies over the past two years. But the staffs believe that the fimdamental reform ofpetroleumpricing to which the authorities have committed will, by removinggovernment altogether from the price-setting process, address the root cause ofpast problems. Because o fthe impending elections, implementation o fthis reform was deemed infeasible before early 2005, raisingthe issue as to whether the completionpoint should have been delayed untilthe new regimewas inplace. The staffs considered that the roughlyone year's delay that would havebeen requiredinthis case was disproportionate inlight o f the otherwise strong policy performance, and given that implementation o fthe new pricing regimehasbeenestablished as a strict condition for the completion o fthe thirdreview under the PRGFarrangement with the Fund. - 22 - v. ISSUES FOR DISCUSSION The staff seeks guidance from Directors on the following points: 0 D o Directors agreethat Ghana should reachthe completion point at this time? D o Directors agree that the authorities' stated commitment to a new petroleumpricing regime provides a sufficient budgetary safeguard against rising world oil prices, and hence warrants a waiver o fthe related completion point trigger that was not observed? 0 D o Directors agree that sufficient assuranceshavebeen given by Ghana's other creditors to commit enhanced HPC Initiative resources to Ghana, as approved at the decision point, on an irrevocable basis? e D o Directors agree that Ghana's poverty reduction strategy and expenditure-tracking system provide a satisfactory basis for ensuringthat enhanced HPC Initiative assistance andother resources will continue to promotepoverty reduction? - 23 - APPENDIX I Ghana:DebtManagementAssessment A. Introduction 1. Responsibility for external debt management resides inthe Aid and Debt Management Unit (ADMU)o fthe Ministryof Finance andEconomic Planning(MOEFP), with other divisions inthe ministryconcerned withnegotiating andcontractingexternal public-andpublicly-guaranteed debt. ADMUmaintainsthe debt database andensures prompt servicing o f external obligations.While ADMU does not prepare independent reports on debt, it does provide keyinputs on debt and debt service obligations to the Bank of Ghana (BOG) for its various reports, to the Controller andAccountant General's office, andto other government agencies requiring this information. Since 2003, ADMUhas established a system to track andrecord grant flows to Ghana, given their importance inoverall aid flows. Information onproject andprogram grants is receivedfrom donors on a quarterly basis. ADMUchairs the Aid andDebt Sub-committee, whichmeetsperiodically to discuss policy issues related to external debt management. 2. At the time o fdecisionpoint, ADMUmaintaineddatarelatingto central government or government-guaranteed debt, buthadlittle information on loans made to public enterprises where there was no explicit government guarantee. Recently, state-owned enterprises have started seeking approval from MOFEP before contracting external debt, even ifa formal guarantee is not required. Creditors also tend to inform the MOFEP before negotiating such credits. ADMU maintains a recordo f such debt when it is signed. The Bankof Ghanaand MOFEParejointly responsible for the technicalwork relatingto the grantingo f state guarantees. 3. While ADMU's focus has been extemal debt, the agency has also made attempts to track domestic debt, which untilrecently, was exclusively the purview o f the Bank of Ghana. (MOFEP receivedtechnical assistancefrom the US, which has focused on enhancingthe reporting o f domestic debt, as well as on strengtheningcash management andforecasting systems. Japan has providedtechnical assistance for extemal debt management.) B. DebtRecordingandReporting 4. Ghana has used the Commonwealth Secretariat's database system, CS-DRMS since 1989, andsufficient staffhave been trained and are proficient inits use. The database is accurate inthe case o fmultilateral debt, on which information regardingpayments falling due andpayments made, are regularlyupdatedbyADMU's staff. Inthe case o fbilateraldebt, gaps have appeared inthe recording o f debt service charges as a result o fParis Club agreements. - 24 - APPENDIX I C. DebtManagement and Borrowing Strategy 5. New borrowing mustbe strictly limitedto concessional loans with a grant element o f 35 percent or more. This policycovers government andparastatal loans with a government guarantee. ADMU i s the only government entity authorized to contract or guarantee external debt. Training on the legal aspects of debt management has beenprovided with the help of UNITAR(UnitedNationsInstitute for Training andResearch). While ADMUcoordinates withBOGwith respect to maintainingthe database, there is need for hrther coordination withrespect to a forward-looking borrowing strategy, which is basedon a commonview of the macroeconomic outlook. D. Analytical Capacity 6. While the technical staff o f ADMU are experienced inhandling the day-to-day issues o f debt management, awarenesso f debt restructuring options and sustainability analyses tends to be concentrated ina few individuals. Progress is beingmadewith training inthe software Debt-Pro, but there is a need for fixther technical assistancebothto ensure a wider dispersion o fthe skills of debt sustainability analyses throughout the staff, andto assist in integrating debt simulations with macroeconomic projections. ADMU i s preparing a policy paper on post-HIPC debt sustainability which itplans to share with keypolicymakers shortly. - 25 - Table 1. Ghana: SelectedEconomicand Financial Indicators, 2001-23 2001 2002 2003 2004 2005 2006 2007 2008 2009-2015 2016-2023 Est. Prog. Proj. Proj. Proj. Proj. Average Average (Annual percentagechange, unlessotherwise specified) Nationalincomeandprices RealGDP 4.2 4.5 5.2 5.2 5.0 5.0 5.0 5.0 5.0 5.0 Consumerprice index (annual average) 32.9 14.8 26.7 10.8 6.0 5.0 5.0 5.0 5.0 5.0 Extemalsector Exports, f.0.b. -3.6 10.2 20.1 8.1 7.0 6.2 3.9 4.3 5.3 5.4 Imports, f.0.b. 2.6 -4.1 20.1 11.0 8.5 6.1 4.4 4.9 5.7 5.5 Exportvolume -1.3 -2.1 -6.8 10.8 6.2 6.3 3.4 3.4 3.7 3.8 Importvolume 10.0 -6.8 6.9 5.7 11.4 6.6 4.1 4.5 4.7 4.5 Terms oftrade 4.8 9.4 14.8 -7.0 3.3 0.4 0.2 0.5 0.6 0.6 Govemmentbudget Domesticrevenue(excluding grants) 43.5 27.5 56.2 32.3 13.6 9.9 10.9 9.8 ' 10.6 11.5 Total expenditure 65.5 2.4 50.2 17.5 4.4 7.2 9.8 8.2 10.5 11.0 Current expenditure 50.5 28.8 35.7 15.1 -5.5 4.9 9.0 8.3 10.5 11.0 Capital expenditureandnet lending 95.7 -38.7 98.4 22.3 25.2 10.9 10.9 8.1 10.5 11.4 Moneyandcredit Net domestic assets I/ 13.5 22.9 -18.6 2.4 1.1 ... ... ... ... ... Broadmoney(excluding foreigncurrencydeposits) 48.4 49.6 40.9 19.2 13.0 ... ... ... ... ... Reservemoney (excludingforeign currencydeposits) 31.3 42.6 33.4 20.5 12.9 ... ... ... ... ... Velocity (GDP/end+f-period broadmoney) 4.8 4.1 4.0 4.0 4.0 ... ... ... ... ... (InpercentofGDP, unless otherwisespecified) Investmentandsaving Grossinvestment 26.6 19.7 23.2 23.1 23.8 24.0 24.1 24.2 24.7 26.6 Grossnationalsaving 21.3 20.2 24.9 23.5 23.3 23.8 23.8 23.8 23.3 24.7 Govemmentbudget Total revenue 18.1 18.0 20.8 23.1 23.2 22.9 22.8 22.4 21.7 21.1 Grants 6.9 3.1 4.7 4.3 3.5 3.2 2.9 2.7 1.9 1.3 Total expenditure 32.7 26.1 29.0 28.6 26.3 25.4 25.0 24.3 23.4 22.3 Overallbalance (includinggrants) 2/ -9.0 -6.8 -4.5 -1.6 -0.9 -0.6 -0.4 -0.7 -1.5 -1.8 Domesticprimarybalance 3.8 2.0 2.2 1.6 1.8 1.2 1.3 0.9 1.6 1.6 Extemalsector Currentaccount balance31 -5.3 0.5 1.7 0.3 -1.0 -1.0 -1.0 -1.1 -1.9 -2.0 (Inmillions of U.S. dollars, unless otherwisespecified) Grossintemational reserves(end ofoeriod) 344 635 1427 1541 1747 1972 2106 2232 2953 4919 (inmonthsofimportsofgoods andservices) 1.2 1.9 3.9 3.9 4.2 4.5 4.6 4.6 5.0 5.7 Sources: Ghanaianauthorities; andFundstaffestimates andprojections. 1/ Inpercent o f broadmoneyat the beginningof the period. 2/ After domestic arrears clearanceand includingcontingencyfunds 3/ Includingofficial grants. - 26 - Table 2. Ghana: Balanceof Payments, 2000-2023 (Inmillions 0fU.S. dollars,unlessotherwisespecified) 2000 2001 2002 2003 2003 2004 2005 2006 2007 2008 2009-15 2016-23 Rel. Rov. Rov. Roj. Proj. Roj. Roj. Proj. Average Average Exports f.0.b. 1,936 1,867 2,057 2,277 2,471 2,672 2,859 3,035 3,153 3,288 4,063 6,013 Cocoabeans andcocoa products 437 381 463 772 818 927 904 925 952 980 1,154 1,560 Gold 705 618 689 770 830 929 1,037 1,076 1,120 1,167 1,483 2,301 Timber andtimber products 175 169 182 176 174 184 196 214 233 247 314 488 Others 619 699 723 560 649 632 722 821 848 894 1,112 1,665 Impom, f.0.b. -2,759 -2,831 .2,714 -3,189 -3,259 -3,617 .3,925 -4,165 -4,348 4,561 -5,741 -8,589 Non-oil -2,239 -2,314 .2,206 -2,582 -2,696 -2,955 .3,277 -3,510 -3,673 -3,866 -4,819 -7,041 Oil -520 -517 -508 -608 -563 -662 -648 -655 -675 -694 -922 -1,547 Trade balance -823 -964 -657 -912 -788 -944 -1,066 -1,130 -1,195 -1,273 -1,678 -2,575 Services (net) -246 -182 -214 -285 -280 -304 -314 -307 -300 -300 -310 -405 Of which interest payments -109 -106 -124 -119 -110 -124 -118 -112 -108 -105 -116 -155 Privatetransfers(net) 496 600 680 783 801 875 932 990 1,040 1,093 1,336 1,933 Current accountbalance, excluding official transfers -573 -546 -190 -413 -266 -372 -448 -447 -455 -480 -652 -1,047 Official transfers(net) 154 263 221 385 393 401 369 359 361 367 380 533 0fwhich:HIPC grants 0 0 62 79 81 113 122 113 122 115 90 68 Current accountbalance, includingofficial transfers -419 -283 30 -28 127 29 -79 -88 -94 -113 -272 -514 Capital account 163 192 -65 129 161 43 89 1I6 154 196 403 809 Official capital (net) 97 104 -115 54 86 -26 31 55 89 126 270 537 Medium andLong-term loans Inflows 513 391 195 337 370 319 359 359 366 393 512 838 Amortization -416 -288 -309 -283 -284 -345 -327 -304 -277 -267 -242 -301 Privatecapital 65 88 50 75 75 69 57 61 66 70 133 273 Other capital anderrorsand omissions 134 107 75 101 214 -205 -62 -44 -35 -37 0 0 Overall balance -123 17 40 202 502 -134 -53 -15 25 46 131 295 Changeinarrears 27 34 -61 0 0 0 0 0 0 0 0 0 Financing 96 -50 21 -202 -502 134 53 15 -25 -46 -131 -295 Debt deferral 0 150 -3 5 -35 -35 -35 -35 -35 0 0 0 0 Netintemational reserves(negativeis increase) I/ 96 -200 -158 -378 -675 -100 -181 -188 -196 -192 -232 -336 Of which Use of Fundcredit -2 1 54 52 53 -5 24 37 -61 -67 -38 -14 Disbursements(PRGF) 35 67 68 73 74 39 78 78 0 0 0 0 Repayments(PRGF) -37 -66 -14 -21 -21 -44 -54 dl -61 -67 -38 -14 Changein reserves(negativeis increase) 52 -79 -292 -460 -792 -114 -206 -225 -135 -126 -193 -322 Exceptional financing 21 0 0 214 212 208 269 269 238 170 146 100 41 Memorandumitem: Gross intemational reserves End ofperiod (US$ millions) 264 344 635 1095 1,427 1,541 1,747 1,972 2,106 2,232 2,953 4,919 Inmonthsofimportsofgoodsandservices 0.9 1.2 2.0 3.2 3.9 3.9 4.2 4.5 4.6 4.6 4.9 5.6 Cocoaexports Volume (inthousandsof tons) 389 370 367 468 403 560 560 566 583 600 677 845 Price (in US$per ton) 1,092 1,021 1,266 1,650 1,950 1,650 1,600 1,620 1,610 1,605 1,694 1,843 Sources: Bank of Ghana; andFundstaff estimatesandprojections. I/Definition changedfromNetForeignAssetstoNetIntemationalReservesattheendof2000. 2/ Includesinterim HIPCrelief from ParisClub creditors comprisingNaples andCologneflow terms. - 2 7 - Table3 Ghana. CentralGovemmentBudgetary Operations andFinancing, 2000-2023 I/ 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-15 2016-23 Prov. Projections Average Avenge (In percentof GDP) Totalrevenueandgrants I 98 25 0 21.1 25 5 27.4 26.7 26.0 257 25.1 23.6 22 4 Revenue 17.7 18.1 180 20 8 23.1 23.2 229 22.8 22 4 21.7 21.1 Tax revenue 16.3 I 7 2 17.5 20 2 21.3 21.2 209 20.8 20.4 19.8 19.2 Nontax revenue2/ 1 5 0.9 0.5 0 6 1.4 0 8 0.8 0.8 0 8 0.8 0.8 2004 revenuemeasures ... ... 0.4 1.1 1.1 1.1 1.1 1.1 1.1 Grants 2 1 6.9 3.1 4 7 4.3 3.5 3 2 2 9 2.7 1.9 1.3 Projectgrants 1.2 4.1 1.0 1 6 1.3 1.1 1.0 1.0 0.9 0 9 0.8 Programgrants 0.9 2 8 II 19 1.6 1.1 1.0 0 9 0.8 0.4 0 2 HIPC assistance (multilateral) 0 0 0.0 1.O 1 2 1 3 1.3 1.1 1.1 1.0 0.6 0 2 Total expenditure 27.7 32 7 26.1 29 0 28.6 26.3 25.4 25.0 243 23.4 22.3 Recurrentexpenditure I 8 5 19.9 20.0 20 0 194 16.2 15.2 14.9 145 I 40 13.3 Noninterest 11 1 12 1 13.8 I3 8 15.0 13.1 13.2 13.0 12.8 12.7 12.5 Interest 7 5 7.8 6.1 6 2 4.4 3.0 2 0 1.9 1.7 1.3 0.8 Domestic(accrual) 5 3 6.1 4.5 4 9 3.1 2.0 1.1 1.1 1.0 0 6 0 3 External (accrual) 2.2 1.8 1.6 1 2 1.2 1.0 0 9 0.8 0.7 0.7 0.5 Capital expenditure(total) 9 2 128 6 1 8 9 9.2 10.2 10.1 10.1 9.8 9 5 9.1 Roadarrears (clearance) -1 2 -0 1 -0.4 -0 3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other domestic paymentarrears 4.6 -1.2 -1 3 -0 7 4.2 -0 1 -0.1 -01 0 0 0.0 0.0 VAT Refunds 0 0 -0.1 -0.1 -0 1 4.2 -0.2 -02 -02 -0.2 4.2 4.1 Contingency3/ 0.0 0.0 0.0 0 0 0 0 -0.9 -1.0 4 8 -1.3 -1.6 -1.7 Overall balance(modified cash basis after arrears clearance) -9.7 -9 0 -6.8 - 4 5 -1.6 -0.9 -0 6 -0.4 -0.7 -1.5 -1.8 Overall balancefrombelow the line -9.5 -7 8 -6.1 -46 -2 0 -0.9 -0.6 -04 4 7 -1.5 -1.8 Discrepancybetweenabove andbelow linedata4/ 0.1 1.2 0.7 4 1 4.4 0.0 0.0 0.0 0.0 0.0 0.0 Divestiturereceipts 1.2 0.0 0.0 0 6 0 5 0.0 0.0 0 0 0 0 0.0 0.0 Total non-divestiturefinancing 8.3 7 7 6.1 4 0 1.5 0.9 0.6 0.4 0.7 1.5 1.8 Foreign(net) 0.5 3.8 -1.6 0 6 4.6 0.1 0.3 0.5 0 7 0.8 0.8 Project loans 3.7 5 2 2.4 2 8 2.0 2.0 1 8 1.7 1.7 1.6 1 4 Programloans 3.0 2.8 0.3 1 7 1.2 1 1 1 1 1.0 0.9 0.7 0.4 Amortization due -6.2 -4.2 -43 -3 9 -3.7 -3 0 -2 6 -2 2 -1.9 -1.5 -1.0 Exceptionalfinancing -07 1.7 2.5 2 7 3 1 3.2 2.6 1.9 1.7 1 3 0.9 Externalpayment arrears -0.7 -1.2 -0 9 0 0 0 0 0.0 0 0 0.0 0.0 0 0 0.0 Additional donor financing 0.0 0 0 0.0 0 0 0.0 0 4 0.3 0.3 0.4 0.7 0 8 Traditional rescheduling 0.0 3 0 3 0 2 2 1.9 1.5 1.0 0 6 0.4 0.2 0.0 HIPC assistance (non-multilateral) 0 0 0 0 0 5 0 5 1.2 1.4 1.3 I O 0.8 0.5 0.1 Savings due to inflation indexedbonds 0 0 0.0 0 4 0 7 0.3 0.2 0.1 0 0 0 0 0.0 0.0 Domestic(net) 51 8.5 2.3 4.8 -0 1 -1.4 -2 6 -2.5 -2.0 -1.7 -06 0.0 Banldngsystem 8.5 -2.6 2.0 -1 5 -0 8 -1.3 -1.4 -1.3 -I1 0.0 0.0 Nonbank 0 1 4.8 2.7 1 4 4 6 -13 -1.1 -0.7 -0.6 -0 6 0.0 Stockof domestic debt 24.1 26.8 26.2 196 17.2 13.1 11.1 100 8.9 5.7 2.5 Excluding recapitalizationbonds 61 24 1 26.8 26.2 196 15.4 115 9.6 8.6 7.7 4 9 2.1 Memorandumitems. (inbillions of cedis) Gross domesticproduct 27,153 38,071 48,862 66,158 0 78,650 89,243 99,341 110,633 123,275 0 194,634 444,367 Total revenueandgrants 5,385 9,532 10,333 16,862 0 21,537 23,806 25,848 28,418 30,972 0 45,810 99,243 Tax revenue 4,415 6,557 8,542 13,346 0 16,761 18,888 20,731 22,988 25,208 0 38,448 85,125 Total expenditure 7,525 12,451 12,753 19,157 0 22,505 23,499 25,193 27,659 29,938 0 45,447 98,911 CUR^^ expenditure 5,034 7,578 9,763 13,245 0 15,251 14,415 15,116 16,479 17,848 0 27,059 58,781 Capitalexpenditure 2,491 4,873 2,990 5,912 0 7,254 9,085 10,077 11,180 12,089 0 18,388 40,130 Overallbalance(modified cashbasis after arrears clearance) -2,624 -3,433 -3,313 -3,006 0 -1,253 -765 -555 -453 -807 0 -3,119 -7,682 Sources. Ghanaianauthorities; andFundstaff estimatesandprojections. I/From2001onwar4above-the-linedatafordomesticrecurrentandcapitalexpenditurearepresentedonacashbasis(paymentvouchers); amearsnotreflectedinlineexpenditures 2i Prior to 2002, nontax revenueincludedpositive balanceson committedaccountsoutsidethe consolidatedfund. 31Indicatesscope for additionalexpenditure andtax cuts (if negative) or expenditurecuts andtax increases (ifpositive). 41Projecteddiscrepancyin 2004reflectsfloat. 51Domesticdebtstockestimates excludenon-interestbearingpcrpetualBOGrevaluationstocks. 61In2004 for BOGandTemaOil Refinery. - 28 - Table 4. Ghana: HIPC Initiative-Assistance Under a Proportional Burden-SharingApproach 112/ (Inmillions ofU.S.dollars, unlessotherwiseindicated) Total Bilateral 31 Multilateral Common NPV o f debt- Reduction Factor to-revenue-target 41 (inpercent) (InNPVterms at end2000) (Percent) 250 2,186 1,084 1,102 56.2 Memorandum items: NPVofdebt 51 3,893 1,93 1 1,962 Paris Club Creditors 1,473 Non-Paris Club Creditors 60 Commercial Creditors 398 Central government revenues 61 683 NPV o f debt-to-revenue ratio (Percent) 570 Sources: Ghanaian authorities and staffestimatesand projections. 11The proportional burden sharing approach i s described in"HIPC Initiative--EstimatedCosts and BurdenSharing Approaches" (EBSl971127, 7/7/97 and IDNSECM 97-306,717197). 21Includesa hypothetical stock-of-debt operationonNaplesterms (December 2000) andcomparable treatment by other official bilateral creditors. 31Includesofficial bilateral creditors and commercial debt. 41Each creditor's NPV reduction inpercent o f its exposure at the decisionpoint. 51Basedon end-2000 data after full application o ftraditional debt relief mechanisms. 61Excludes grants. - 29 - Table 5. Comparison of Discount Rate and Exchange Rate Assumptions at end-2000 and end-2003 Discount Rates 1121 Exchange Rates (Inpercentperannum) (Currency perUS.dollar) At A t A t Decision Completion At Decision Completion point point Point Point Currency Austrian Shillings 6.25 4.63 14.79 10.89 BelgianFranc 6.25 4.63 43.35 31.94 Canadian Dollar 7.00 5.18 1.50 1.29 Chmese Yuan 6.09 4.20 8.28 8.28 Danish Kroner 6.73 4.77 8.02 5.96 Deutsche Mark 6.25 4.63 2.10 1.55 Euro 6.25 4.63 1.07 0.79 FinnishMarkaa 6.25 4.63 6.39 4.71 FrenchFranc 6.25 4.63 7.05 5.19 Great Britain Sterling 6.73 5.37 0.67 0.56 IrishPunt 6.25 4.63 0.85 0.62 ItalianLira 6.25 4.63 2080.89 1533.07 Japanese Yen 2.03 1.70 114.90 107.10 KoreanWon 9.41 5.74 1264.50 1192.60 Kuwaiti Dinar 6.09 4.47 0.3 1 0.29 Netherland Guilders 6.25 4.63 2.37 1.74 Norwegian Kroner 8.02 5.30 8.85 6.68 Portugese Escudo 6.25 4.63 215.46 158.73 Saudi Arabian Ryal 6.09 4.20 3.75 3.75 SouthAfrican Rand 6.09 4.20 7.57 6.64 Spanish Peseta 6.25 4.63 178.81 131.74 Special DrawingRights 6.09 4.20 0.77 0.67 Swedish Kroner 6.20 5.00 9.54 7.19 Swiss Franc 5.33 3.21 1.64 1.24 UnitedStatesDollar 7.19 4.47 1.oo 1.oo Memorandumitem: Paris Club cutoff date is January 1, 1983. Sources: OECD; andIMF,International Financial Statistics. 1/ The discount ratesused are the averagecommercial interest reference rates (CIRRs) for the respective currencies over the six-monthperiodending inDecember 2003 for the completion point and 2/ For all Euro area currencies, the Euro CIRR is used. For the Kuwaiti Dinar, the US dollar CIRR is usedfor completionpoint calculations (compared to the decisionpoint calculations, when the SDR CIRR was used), inaccordance to the explicit peg o f the Dinar to the U S dollar inthe beginning o f 2003. For all other currencies for which the respective CIRRs are not available, the SDR discount rate is usedas aproxy. - 3 0 - Table 6. Ghana: ComparisonofNet Present Value of ExtemalPublic DebtBetweenDecisionPointand CompletionPoint (Inmillions0fU.S. dollars; unlessothenviseindicated) Stock at end-2000 Stock at end-2003 DecisionPointDSA 1/ DecisionPointDSA (Proj.) 11 CompletionPointDSA 21 M e r After After M e r traditional enhanced traditional enhanced M e r traditional M e r enhanced M e r additional debt relief debtrelief debt relief debt relief debt relief debtrelief bilateralrelief31 NPV of debt usingend-2000 parameters 3,893 1,706 3,889 2,154 3,782 2,017 1,575 Multilateral 1,962 860 2,546 1,502 2,341 1,292 1,292 Official bilateral and commercial 1,931 846 1,343 653 1,440 724 283 NPV of debtusingend-2003 parameters ... ... ... ... 5,000 2,937 2,370 Multilateral ... ... ... ... 3,277 2,042 2,042 Official bilateral and commercial ... ... ... ... 1,723 895 327 NPV of debt-to-revenues ratio 41 Usingend-2000parameters 570 250 319 177 ... ... ... Using end-2003 parameters ... ... 321 189 152 Memorandumitems: NPV of enhancedHIPC assistance51 Usingend-2000parameters ... 2,186 ... ... ... Usingend-2003 parameters ... ... ... 2,063 ... Centralgovernmentrevenues61 Decisionpoint 683 683 1,218 1,218 ... ... ... Completionpoint ... ... 1,555 1,555 1,555 Sources: Ghanaianauthorities; andstaffestimates. 1/ Basedon stock o fdebt reconciledas of end-December2000, assumingfull (hypothetical)delivery ofenhancedHIPC assistance. 21Basedon stock o f debt reconciledas of end-December2003, assumingfill(hypothetical) delivery ofenhancedHIPC assistance. 31M e r debt reliefbeyondHIPC offered by some of the ParisClub creditorson avoluntarybasis. 41Revenueis defined as centralgovernmentrevenue, excludinggrants. S i The value ofassistanceunderthe enhancedHIPC fiamework was determinedat decisionpointusingend-2000parameters(exchangeratesanddiscount factors). The correspondingvalues for enhancedHIPCreliefexpressedas o f end-2003 areprovided for informationonly. 6/ Excludesgrants. -31 - Table 7. Ghana: Nominal and Net Present Value of Extemal Debt at Completion Point, End-2003 l/ (in millionso fUS dollars) LegalSituation2/ After Full Applicationof TraditionalDebtRelief 3/ NominalDebt NPV of Debt NominalDebt NPV of Debt Total 7,548.9 5,541.6 7,033.3 5,032.1 Multilateral 5,176.1 3,277.0 5,176.1 3,277.0 IDA 3,964.6 2,376.5 3,964.6 2,376.5 IBRD 3.9 4.0 3.9 4.0 African DevelopmentBank Group 500.8 324.8 500.8 324.8 IMF 453.1 381.2 453.1 381.2 BADEA 23.4 21.9 23.4 21.9 EuropeanInvestmentBank 50.9 48.7 50.9 48.7 EuropeanUnion 36.1 27.5 36.1 27.5 IFAD 92.1 56.6 92.1 56.6 Nordic DevelopmentBank 33.4 19.4 33.4 19.4 OPEC 17.7 16.4 17.7 16.4 Official bilateral 2,106.0 1,967.4 1,656.0 1,539.2 ParisClub 1,976.3 1,869.6 1,552.1 1,458.2 Austria 70.7 52.4 55.1 47.1 Belgium 3.6 3.0 1.o 0.8 Canada 3.2 3.0 11.7 12.0 Finland 2.5 2.9 2.1 2.1 France 143.1 124.5 121.8 106.1 Germany 249.7 144.0 217.3 128.2 Italy 50.6 44.4 26.9 24.7 Japan 1,057.9 1,112.1 817.8 868.7 Netherlands 92.2 94.4 80.0 79.2 Noway 7.3 7.0 7.3 7.1 Spain 64.9 48.5 59.3 44.6 Sweden 40.5 34.3 24.7 21.6 UnitedKingdom 103.5 105.5 100.3 86.9 UnitedStates 86.6 93.5 26.8 29.0 Other officialbilateral 129.7 97.8 103.9 81.0 China 64.6 55.9 55.0 41.1 KuwaitiFund 32.9 19.4 17.9 17.1 Korea 25.0 18.0 20.4 13.7 Saudi Fund 7.3 4.5 10.6 9.0 Commercialcreditors4/ 266.8 297.2 201.3 216.0 Germany 3.3 3.2 7.9 7.8 Korea(SamsungCop.) 152.5 182.0 99.9 118.0 UnitedKingdom 47.0 45.1 30.2 28.2 UnitedStates 19.5 20.2 8.3 8.4 SouthAfrica 42.7 44.8 29.5 30.8 Others 1.9 1.9 25.5 22.7 Sources: Ghanaianauthorities; andstaffestimates. 1/ Figuresare basedon data as of December 31,2003. 21Reflects the extemal debt situationas of end-2003, includinga ParisClub flow reschedulingon Cologneterms. Sincemostof Ghana's contractedafterthe originalcut-off debt of January 1, 1983,the ParisClub fixed anewcut-off debt of June 20, 1999to deliver interim assistance andrecalculateburdensharingamongstits members. 31After full useoftraditionaldebt reliefmechanismsincludingfor non-ParisClub members, usingthe original cut-offdate of 1983. 4/ Several commercialcreditorsbelongingto France, Belgium, Netherlands,the UnitedKingdom andJapan are nowclassifiedas bilateraldebt, as aresult of their debt beingincludedin ParisClub agreements. d - 33 - O -$ * * % a . < - 34 - . h - 35 - - 36 - Table 12. Ghana: Delivery o fIDA Assistance Under the HIPC Initiative, 2001-2022 (Inmillions ofU.S. dollars, unless otherwise indicated) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 IDAdebtservicebefore HIPCrelief 55.1 62.2 66.7 72.4 78.6 84.6 89.4 95.1 101.2 105.7 111.5 Principal 31.8 39.1 43.8 50.0 56.5 62.9 68.3 74.5 81.1 86.3 92.7 Interest 23.4 23.1 22.8 22.5 22.1 21.7 21.2 20.6 20.1 19.5 18.8 IDA debt serviceafter HIPCrelief 55.1 29.2 21.707 23.6 25.6 27.5 29.1 31.0 32.9 34.4 36.3 Principal 31.8 17.9 14.3 16.3 18.4 20.5 22.2 24.2 26.4 28.1 30.2 Interest 23.4 11.3 7.4 7.3 7.2 7.1 6.9 6.7 6.5 6.3 6.1 IDA assistance I/ 0.0 32.9 45.0 48.9 53.0 57.0 60.3 64.1 68.2 71.3 75.2 Principal 0.0 21.1 29.6 33.7 38.1 42.4 46.0 50.2 54.7 58.2 62.5 Interest 0.0 11.8 15.4 15.2 14.9 14.6 14.3 13.9 13.5 13.1 12.7 Memorandumitem: IDA debtrelief as percentof IDA debt servicedue (inpercent) 0.00 0.53 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.67 Interimassistance2/ 94.70 Interimreliefaspercento ftotal 12.1 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 IDA debt servicebefore HIPCrelief 117.7 120.5 122.7 126.1 127.5 128.5 128.0 128.9 129.2 129.0 128.0 Principal 99.6 103.2 106.1 110.4 112.6 114.4 114.8 116.6 117.7 118.4 118.3 Interest 18.1 17.3 16.6 15.7 14.9 14.1 13.2 12.3 11.5 10.6 9.7 IDA debt service after HIPCrelief 38.3 39.2 39.9 41.1 41.5 41.8 41.7 42.0 42.1 42.0 106.6 Principal 32.4 33.6 34.5 35.9 36.7 37.2 37.4 38.0 38.3 38.6 98.7 Interest 5.9 5.6 5.4 5.1 4.9 4.6 4.3 4.0 3.7 3.4 8.0 IDAassistance1/ 79.4 81.3 82.7 85.0 86.0 86.6 86.3 87.0 87.1 87.0 21.4 Principal 67.2 69.6 71.5 74.4 75.9 77.1 77.4 78.6 79.4 79.9 19.6 Interest 12.2 11.7 11.2 10.6 10.1 9.5 8.9 8.3 7.7 7.1 1.7 Memorandumitem: IDA debtreliefas percento fIDA debt service due (inpercent) 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.67 0.17 Sources:Ghanaianauthorities; andIDA staffestimates. 1/Total debt servicereductiono fUS$1445.7million innominalterms correspondingto US$781.5 millioninNPV terms, using end-2000discountratesandexchangerates. 21Innetpresentvalue (NPV) terms; assuminga DecisionPoint inFebruary2002 and aCompletionpointinJuly 2004. - 37 - Table 13. Ghana: Delivery ofIMF Assistanceunder the EnhancedHIPC Initiative 11 (InmillionsofSDRs, unlessotherwise indicated) Actual 2002 2003 2004 2005 2006 2007 2008 2009 Delivery schedule ofIMF assistance(in percent oftotal assistance)21 8.2 14.9 20.0 16.6 6.6 18.6 14.4 0.9 Debt Service due on IMF obligations 31 10.5 17.1 31.5 38.4 30.0 37.6 33.3 18.6 Principal 8.2 15.1 29.6 36.3 28.0 35.8 31.7 17.2 Interest 2.3 2.0 1.9 2.1 2.0 1.8 1.6 1.5 IMF assistance-deposits into Ghana's account Interimassistance 9.91 15.15 Completion point assistance 64.987 41 IMF assistance-drawdown schedule 51 7.3 13.5 21.2 19.9 11.5 18.4 14.0 1.2 1MF assistance without interest 7.3 13.4 18.1 14.9 5.9 16.7 12.9 0.8 Estimated interest earnings 0.1 3.1 5.0 5.6 1.7 1.1 0.4 Debt service due on I M F obligations after IMFassistance51 3.2 3.6 10.3 18.5 18.5 19.2 19.3 17.5 Share o f debt service due on I M F obligations coveredby IMF assistance (inpercent) 51 69.7 79.1 67.2 51.8 38.4 48.9 42.1 6.3 Proportion (in percent) o feach principalrepaymentobligation falling due during the period to be paid by IMF assistance from the principal depositedinGhana'saccount 89.3 89.1 60.8 41.1 21.0 46.6 40.8 4.9 Memorandumitems: (Based on debt service data and exchange rates as of end-2000) Total debt service due (inmillions of US.dollars) 6171 375 368 376 368 347 350 363 359 Debt service due on IMF obligations (inmillions 0fU.S. dollars) 71 15.4 20.6 39.5 48.0 37.0 33.3 27.8 8.7 Debt service due on current IMF obligations after IMF assistance71 8.0 7.1 18.3 28.1 25.5 14.9 13.7 7.5 (inpercent ofexports) 0.3 0.3 0.8 1.1 0.9 0.5 0.4 0.2 Shareo f total debt service covered by IMF assistance(inpercent) 71 2.0 3.7 5.6 5.4 3.3 5.3 3.9 0.3 Source:Fund staff estimates. I / Total IMF assistanceunder the enhancedHIPC Initiativeis SDR 90.05 million calculated on the basiso f data available at the decision point, excluding interest eamed on Ghana's account and on committed but undisbursedamountsas describedinfootnote 6. 21While the I M F deposited 11percent of enhancedassistanceinto Ghana'saccountafter the decision point, the delivery schedule for 2002 shows the share (8.2 percent) of enhanced assistanceapplied to Ghana's principal repaymentobligations falling due from mid-Februaryto end-December2002. 31 Forthcoming obligations estimated based on ratesandprincipal schedules in effect as of end-December 2001. Interestobligations include net SDR charges and assessments. 41A final disbursement o f SDR 64.987 million (plus accruedinterest) assumedto be disbursed into Ghana'saccount at the completion pointin June2004, which is reflected inthe calculation of interest. 51Includesestimated interest earnings on: (I) amountsheldinGhana'saccount; and (2). up to the completionpoint, amountscommitted butnot yet disbursed. It is assumed that these amounts earn a rate of return of5 percent in SDR terms; actual interest eamingsmay be higher or lower. Interest accrued on (1) during a calendar year will be usedtoward the first repayment obligation(s) falling due inthe following calendar year except inthe final year, when itwill he usedtoward payment ofthe final obligation(s) falling due inthat year. Interest accrued on (2) during the interim period will be usedtoward the repayment ofobligations falling due during the three years after the completion point. 61 After traditional debt reliefmechanisms. 71 Excludeschargesin the SDR Department of the IMF. - 38 - Table 14.Ghana: Status ofCreditor Participation Under the EnhancedHIPC Initiative Debtrelief Percentage of Satisfactory Modalities to inNPV terms total assistance reply .. deliver debt relief (US$ millions) li ID" 781.5 35.7 Yes IDA reliefis beingprovidedover twenty years (2000-22). Interimassistancehasbeenprovidedequivalent to a 67.4 percent reduction on Ghana's debt serviceto IDA, andtotalled US$98 million as of end-May2003. After completion point, assistancewill resume inthe same manner. IMF 112.1 5.1 Yes IMFassistance will be delivered through grants from the PRGFiHIPC Trust Fundto the member's umbrella account. These resources, plus accrued interest, will be usedto reduce the amortization falling due. Interimassistanceofabout SDR 25.1 million has heen delivered until Mav 2004. AfDBiAFDF 130.9 6.0 Yes As ofend-June, interimassistance ofUS $51.8 millionhas been provided. Total assistance will cover 80 percentofthe debt service falling due through 2013. The total ofdebtreliefis expectedto be delivered by January 2013. EU 14.3 0.7 Yes Interim relief was providedinthe form o f 100percentdebt service reliefon eight outstandingEDF loans, andtotalled EUR 2.2 mnas ofJune2003. Modalities for the delivery of assistance after completion uoint remain to be specified 27.0 1.2 Yes As ofJune 2003, interimreliefamounting to EUi2.5 mnhas beendelivered.Assistance will most likelybeprovidedinthe form of a 100percentreduction o fthe debt serviceon loansto the Volta RiverAuthority. Modalities for this are still to be finalized and would require consent of the Governmento f Ghana. IFAD 17.7 0.8 Yes Assistance will be delivered at the CompletionPoint, through a reduction ofdebt servicepaymentson eligible debt by up to 100 percent untilthe targetofUS$ 17.7mninNPV terms isreached. Precisemodalities for delivery of assistanceremain to be specified. Preliminaryestimatesshow that FAD'sreliefcould be delivered over 11years. OPEC Fund 5.8 0.3 Yes The OPEC Fundwill partially provide assistanceafter Completion Pointby means of a new concessionalUS$6.0 million loan whose resourceswill be usedto meet the debt eervior nmmentE r l w tn the nPFC Fmrl NDF 5.4 0.2 Yes NDF provides assistance after CompletionPoint through a reduction ofdebt servicepayments on eligible debtby up to 100 percentuntilthe target ofUS$ 5.4 millioninNPV termsis reached. Preliminaw estimatesshow that aNDF's reliefcouldbe BADEA 7.1 0.3 Yes Assistance will most likely beprovided through a rescheduling ofprincipal paymentsand a reductionof interest rates. Precise modalities are still to be finalized. Total multilateral 1101.8 50.4 n.a. - 39 - Table 14. Ghana: Status o fCreditor Participation Under EnhancedHIPC Initiative(concluded) Debt relief Percentageo f Satisfactory Modalities to inNPV terms total assistance reply deliver debtrelief Paris Club creditors 828.5 37.9 Yes Interimassistancehasbeenprovided through a flow reschedulingunder Cologne terms. Germany,Netherlands,Italy, USA andthe UKhaveprovided 100percent flow cancellation, Japan and Spainprovided 100percent rescheduling,and Canada 95 percent cancel1 Non-Paris Club creditors 32.8 1.5 China 8.7 0.4 Yes Someloans have beencancelled India 0.0 0.0 No Negotiations inprogress. Amount falls under the de minimis crit Korea 4.4 0.2 No Negotiations are inprogress Kuwait Development Fund 10.9 0.5 Yes Provideddebt reliefonNaples terms Saudi Development Fund 8.7 0.4 Yes Providedinterim flow reliefonNaples terms. Will consider additional relief at completionpoint. Commercial creditors 223.0 10.2 No Beingcontactedby Ghana Total bilateral andcommercial 1084.3 49.6 Total 2186.1 100.0 Sources:Ghanaianauthorities; andBankandFundstaffestimates. I/Theamountofassistanceisestimatedusingtheexchangeratesatthedecisionpoint. - 40 - Table 15. ParisClub Creditors' Delivery o fDebt ReliefUnder Bilateral Initiatives Beyondthe HIF'C Initiative Countries covered ODA (in percent) Non-ODA (in percent) Provision of relief Pre-COD Post-COD Pre-COD Post-COD Decisionpoint Completion (Inpercent) point (1) (2) (3) (4) (5) (6) (7) Australia HIPCs 100 100 100 100 11 11 11 Austria HIPCS(c-b-c) c-b-c (100) c-b-c (100) c-b-c (100) c-b-c c-b-c Belgium HIPCs 100 100 c-b-c (100) flow Stock Canada HIPCs 21 - 31 -31 100 100 100flow Stock Denmark HIPCs 100 c-b-c (upto 100) Stock France HIPCs 100 100 100 100flow 41 Stock Finland HIPCs 95 98 Germany HIPCs 100 100 100 100flow Stock Ireland Italy HIPCs 100 100 51 100 100 51 100 flow Stock Japan HIPCs 100 100 100 Stock Netherlands HIPCs 100 100 100 90-100 flow 61 Stock 61 Norway HIPCs - 31 -31 100 100 71 100 flow Stock Russia c-b-c Stock Spain HIPCs 100 c-b-c c-b-c c-b-c Stock Sweden c-by-c - 31 - 31 C-b-C (100) Stock Switzerland HIPCs 100 31 - 31 100 81 c-b-c 100 81 Stock UnitedKingdom HIPCs 100 100 100 100 91 100 flow 91 Stock UnitedStates HIPCs 100 100 100 100 10 100flow Stock Source: Paris Club Secretariat Note: Columns (1) to (7) describe the additional debt reliefprovided following a specific methodology under bilateral initiatives and needto be readas a 3 each creditor. Incolumn (l), stands for eligiblecountries effectively qualifying for the HIPC process. A "100 percent" mention inthe table mea "HIF'Cs" debt relief providedunder the enhancedHIF'C Initiative framework will be topped up to 100percent through abilateral initiative. (Case-by-case, c-b-c) 11Australia: post-cutoff datenon-ODA reliefto apply to debts incurredbefore a dateto be finalized; timing details for both flow and stock reliefare to be 21Canada: includingBangladesh. Canada hasgranteda moratorium o f debt service as o fJanuary2001 on all debt disbursedbefore end-March 1999 for 1 o f 17HIF'Cs with debt service due to Canada. The debt willbe written off at the completionpoint. The countries to be covered are: Benin, Bolivia, Came Ethiopia, Guyana, Honduras, Madagascar, Mali, Senegal, Tanzania, and Zambia. 31 100 percent o fODA claims have alreadybeencancelled on HIF'Cs, with the exception o fMyanmar's debt to Canada. 41 France: cancellation of 100percent ofdebt serviceonpre-cutoffdate commercial claims as they fall due starting at the decision point. Once countries havereachedtheir completion debt reliefon ODA claims will go to a special account and will be usedfor specific development projects. 51Italy: cancellation o f 100percent o fall debts @re- andpost-COD, ODA andnon-ODA) incurredbefore June 20, 1999 (the Cologne Summit). At decisia point cancellation o fthe relatedamountsfalling due inthe interimperiod. At completionpoint cancellation of the stock ofremaining debt. 61 The Netherlands: O D A 100percent ODA: pre- andpost-cutoff date debt will be cancelledat decision point; for non-ODA: insome particular cases (1 Burkina Faso, Mali, Ethiopia, Nicaragua, and Tanzania), the Netherlands will write off 100percent o fthe consolidated amountson the flow at decision pc other HIPCs will receive interimreliefup to 90 percent reduction ofthe consolidated amounts. At completionpoint, all HIPC countries will receive 100I cancellationof the remainingstock o f the pre-cutoff date debt. 71 On debt assumedbefore December31,1997. 81 Switzerland Inprinciple 100percent cancellation o fhe-cutoffdate non-ODA debt. However, Switzerlandclaims the right at the decision point to for] 90 percent incase o fmajor political and/orpolitical weaknesses. 91 UnitedKingdom: "beyond 100percent" full write-off o f all debts ofHIF'Cs as o f their decision points, andreimbursement at the decision point of any paidbefore the decision point. 101UnitedStates: 100percent post-cutoff date non-ODA treated on debt assumedprior to 06120199 (the Cologne Summit). -41- Table 16.HIPC Initiative: Statusof Country Cases ConsideredUnder the Initiative, end-May 2004 Target EstimatedTotal NPV ofDebt-to- AssistanceLevels 11 Percentage NominalDebt Decision Completion Gov. (Inmillionsof U.S. dollars,presentvalue) Reduction ServiceRelief country Point Point Exports revenue Multi- World inNPV of (Inmillionsof (inpercent) Total Bilateral lateral IMF Bank Debt21 U.S. dollars) Completion point reachedunder enhancedframework Benin Jul. 00 Mar. 03 150 265 77 189 24 84 31 460 Bolivia 1,302 425 876 84 194 2,060 on'snalframework Sep. 97 Sep. 98 225 448 I57 291 29 54 14 760 enhancedframework Feb. 00 Jun. 01 150 854 268 585 55 I40 30 1.300 Burkina Faso 553 83 469 57 231 930 original framework Sep.97 AI. no 205 229 32 196 22 91 27 400 enhancedfiamework J ~ Ino . Apr. 02 Is0 195 35 161 22 79 30 300 topping-up Apr. 02 I50 129 16 112 14 61 24 230 Ethiopia original framework Nov. 01 Apr. 04 150 1,275 482 763 34 463 47 1,94 1 topping-up Apr. 04 150 707 155 552 26 369 31 1,334 Guyana 591 223 367 75 6S 877 original framework Dec. 97 May 99 107 280 256 91 I65 35 27 24 440 enhancedframework NO^. no Dec-03 150 250 335 I32 202 40 41 40 437 Mali 539 169 370 59 185 895 originalframework Sep. 98 sep. no 200 I21 37 84 14 43 9 220 enhancedframework Sep. 00 Mar. 03 isn 417 132 285 45 I43 29 675 Mauritania Feb. 00 Jun. 02 137 250 622 261 361 47 100 50 1,100 Mozambique 2,023 1,270 753 143 443 4,300 original framework Apr. 98 Jun. 99 200 1,717 1,076 641 125 381 63 3,700 enhancedframework Apr. 00 Sep. 01 150 306 194 112 I 8 62 27 600 Nicaragua Dec. 00 Jan44 150 3,308 2,175 1,134 82 191 73 4500 Niger originalframework Dec. 00 Apr. 04 150 521 211 309 28 170 54 944 topping-up Apr. 04 150 143 23 119 14 70 25 246 Senegal Jun. 00 Apr. 04 133 250 488 212 276 45 124 19 850 Tanzania Apr. 00 Nov. 01 150 2,026 1,006 1,020 120 695 54 3,004 Uganda 1,003 183 820 160 517 1,950 originalframework Apr. 97 Apr. 98 202 347 73 274 69 I60 20 650 enhancedframework Feb. nn May nn 150 656 110 546 91 357 37 i.300 Decisionpointreachedunder enbancedframework Cameroon Oct. 00 Floating 150 1,260 874 324 37 179 27 2,0439 Chad May. 01 Floating 150 170 35 134 18 68 30 260 Congo, DemocraticRep. of Jul. 03 Floating 150 6,311 3,837 2,474 472 831 80 10,389 Gambia, The Dec.00 Floating 150 67 17 49 2 22 27 90 Ghana Feb. 02 Floating 69 250 2,186 1,084 1,102 112 781 56 3,700 Guinea Dec. 00 Floating 1so 545 215 328 31 152 32 800 Guinea-Bissau Dec. 00 Floating 150 416 212 204 12 93 85 790 Honduras Jul. 00 Floating 110 250 556 215 340 30 98 18 900 Madagascar Dec.00 Floating 150 814 457 357 22 252 40 1,500 Malawi Dec.00 Floating 150 643 163 480 30 331 44 1,000 Rwanda Dec.00 Floating 150 452 56 397 44 228 71 800 SBo Tom6 andRincipe Dec.00 Floating 150 97 29 68 24 83 200 SierraLeone Mar. 02 Floating 150 600 205 354 123 122 80 950 Zambia Dec. 00 Floating 150 2,499 1,168 1,331 602 493 63 3,850 Preliminary HIPC documentissued CBte dlvoire Mar. 98 3, 141 280 345 163 182 23 91 6 41 800 Total assistanceprovidedlcommitted 32,325 15,686 16,503 2,551 51 1,669 53,416 Preliminary HIPC documentissued CBte dIvoire 61 ... 91 250 2,569 1,027 918 166 438 37 3,900 Sources: IMF andWorld BankBoarddecisions, completion point documents, decisionpoint documents, preliminary HIPC documents,and staffcalculations. 11 Assistancelevelsare at coun!xkS' respective decision or completionpoints, as applicable. 21 Inpercentof the netpresentValue of debtat the decision or completionpoint (as applicable), after the fulluseofbaditional debt-relief mechanisms. 31 CBte d'Ivoire reachedits decisionPokt under the original framework inMarch 1998. The total amount of assistance committed thereunder was US$345 million inNP\ 41 Nonreschedulabledebt to non-ParisClub officialbilateral creditorsandthe London Club, which was alreadysubjectto ahigblyconcessionalrestructuring, is excludedfromthe NPVof debt at the completionpoint inthe calculationo fthis ratio. 51 Equivalentto SDR 1,721 million at an SDWUSD exchangerate of0.6730, as ofDecember 1,2003. 61 It is suggestedthat enhancedHIPCrelief for CBte dlvoue overtake the commitmentsmadeunder the original HIPC framework.