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POLI 211
Introduction to Development
Studies
Session 8 STRUCTURAL ADJUSTMENT AND POVERTY
REDUCTION STRATEGIES IN THE QUEST FOR DEVELOPMENT
Lecturer: Dr. Maame Adwoa A. Gyekye-Jandoh
Contact Information: [email protected]
College of Education
School of Continuing and Distance Education
2014/2015 – 2016/2017
Session Overview
– Overview
– In this session, structural adjustment policies,
touted as an aid in bringing economic growth
and development, particularly to countries in
Africa beginning in the decade of the 1980s,
will be examined. Also to be examined are
poverty reduction strategies pursued in
developing countries as alternatives to the
costly structural adjustment programs carried
out, using Ghana as an example.
Slide 2
Session Outline
The key topics to be covered in this session are as
follows:
• Topic One: Structural Adjustment Policies in
Africa in the 1980s
• Topic Two: Successes and Costs of the Structural
Adjustment Programme in Ghana
• Topic Three: Poverty Reduction Strategies in the
Quest for Development
Slide 3
Reading List
• Paul Streeten (1987). “Structural Adjustment: A
Survey of the Issues and Options.” In Development
Studies: A Reader by Stuart Corbridge. ed. 1995. p.
368-382. London: Arnold
• Nonor, Daniel. Fighting poverty and enhancing rural
development: The contribution of CBRDP.
Http://ghanaian-chronicle.com/features/fightingpoverty-and-enhancing-rural-development/
• www.africaaction.org/african-initiatives/aaf3.htm).
Slide 4
Topic One
STRUCTURAL ADJUSTMENT
POLICIES IN AFRICA IN THE 1980S
Slide 5
Structural Adjustment Policies in Africa
in the 1980s
• Structural Adjustment Policies were proposed and implemented
by the World Bank and the IMF (International Monetary Fund) in
the early 1980s in Africa due to the economic crisis that hit Africa
in the 1980s. This crisis had many causes.
• 1. There was a drought in 1981/82 that resulted in one of the
worst famines ever in Africa.
• 2. There was a fall in prices of major commodities exported by
African countries, and this led to very scarce and very expensive
foreign exchange. A black market for foreign exchange became
the norm. Many countries could not import enough goods and
also not produce enough essential goods domestically.
• 3. The prices of domestic good therefore rose and there were
queues everywhere. National currencies had become almost
useless and the cost of living was very high.
Slide 6
Structural Adjustment Policies in Africa
• African countries, in a tight and desperate situation,
sought financial help from the IMF and World Bank
mainly because they could not get this help
anywhere else.
• Therefore the World Bank and IMF became primary
lenders to many countries in Africa, and they made
this assistance available on their own terms and
conditions.
Slide 7
Structural Adjustment Policies in Africa
continued
• To ensure that African countries pursued economic
policies that were closer in line with the market
economy model, the Bretton Woods institutions
(World Bank and IMF) and Western donors alike
decided that African countries should adopt
structural adjustment programs (SAPs) in order to
qualify for any type of loans.
• Note that these SAPs were mainly concerned with
policies that would allow African countries to reduce
the deficits on their external accounts, and secondly,
achieve a balanced government budget .
Slide 8
Principles of Structural Adjustment
• Although the actual specifics of the SAPs differed from
country to country, they generally included these principles
to be put in action:
• 1. Cuts in government spending – especially on services
crucial to the poor, the aged, and the vulnerable, such as
education, health, housing, and water.
• 2. Removal of import controls as well as the removal of low
prices for even essential goods. Countries were to allow the
free market to determine prices.
• 3. Devaluation of currencies was prescribed. This was
supposed to increase self-sufficiency by making the prices of
imported goods more expensive and African exports cheaper
in order to bring in more foreign exchange.
Slide 9
Principles of Structural Adjustment
• 4. Tight-fisted control of money supply and credit was encouraged.
This was to get rid of inflation or lower it considerably and raise
interest rates to encourage savings.
• 5. The fifth and final general principle was privatization, especially
of government-owned enterprises.
• All in all then, it was hoped that these SAP policies would solve the
economic crisis in Africa and improve governments’ capacity to
service their debt obligations.
• The ‘fat’ of government spending and intervention in the economy
would be cut away, leaving the ‘muscle’ of a re-invigorated private
sector to push development forward. Government development
projects and social service initiatives would be suspended until
adjustment was carried out. Africa would import less and export
more” (www.africaaction.org/african-inititatives/aaf3.htm).
Slide 10
Sample Questions
• What gave rise to the
implementation of SAPs in Africa in
the 1980s?
• Describe any three important
elements or principles of the SAPs in
Africa.
Slide 11
The Impact of Structural Adjustment in
Africa
• The Impact of the SAPs in African Countries
• 1. Rather than addressing the fundamental factors
responsible for the persistent socioeconomic crisis in Africa,
the SAPs merely addressed the symptoms.
• 2. The SAPs failed to address the need for improved
technological and social infrastructure and failed to engage
the support, enthusiasm, and creativity of the African people
and their grassroots organizations.
• 3. Thus, one of the major impacts of the SAPs was that they
led to the postponement or total abandonment of
development programs – no new roads, hospitals, or schools
could be built (if they were at all they were very few) and
existing ones lacked the basic materials, such as drugs, chalk,
textbooks, and writing materials.
Slide 12
The Impact of Structural Adjustment in
Africa
• By the late 1980s, the economic turnaround sought
by the SAPs had not occurred in most of the
countries that had embarked on the SAPs. Many
suffered further setbacks like:
• Like high inflation, lower spending on health,
education, water and sanitation, and housing. The
policy of retrenchment or laying off people from
their jobs supposedly to cut back on waste and
inefficiency also led to a real suffering of many
people, and real wages declined.
Slide 13
Topic Two
SUCCESSES AND COSTS OF THE
STRUCTURAL ADJUSTMENT
PROGRAMME IN GHANA
Slide 14
Successes and Costs of the Structural
Adjustment Programme in Ghana
• This topic introduces to you the SAPs as they were implemented
in Ghana specifically, and the modest successes chalked in the
1980s. It also details the major costs associated with
implementing the SAPs in Ghana.
• By 1993, SAPs were being implemented in 36 African countries.
Ghana adopted the SAP, which it dubbed the Economic Recovery
Programme (ERP), in 1983, and it had to tackle immediately how
to bring the rate of inflation down.
• Note that labor bore the brunt of most ERP/SAP policies. The
Provisional National Defence Council (PNDC) government, led by
Flt. Lt. Jerry John Rawlings, did not dialogue with civil society
initially on the economic reforms to be undertaken. In the shortrun, this enabled the government to take decisive action on
some potentially controversial economic issues such as removal
of subsidies for workers and cuts in social expenditure.
Slide 15
Successes of Structural Adjustment in
Ghana
• Successes of the ERP/SAP in Ghana
• 1. The ERP had a good impact on macroeconomic indicators.
There was an increase in national income by 10.34% in 1984
and a decrease in the inflation rate from 123% to 39.5% in
1983.
• 2. Export volumes also increased by 2% in 1984 compared
with the decline of 27.8% in 1983.
• 3. The investment rate in the country increased by 50%
between 1984 and 1985, and increased by 30% between 1986
and 1987.
• 4. The total national output expanded in 1984 for the first
time in four years, and GDP growth was 8.6% in 1984. GDP
growth continued at 5% for the next three years, 1985, 1986,
and 1987.
Slide 16
More Successes of Structural
Adjustment in Ghana
• 5. The ERP brought significant flows of aid into
Ghana, and along with the devaluation of the cedi,
contributed to the increase in the value of cocoa
exports, which doubled between 1983 and 1986.
Government revenues and the incomes of cocoa
farmers also increased.
• 6. The increase in exports and imports led to a rapid
expansion in domestic transportation, retailing, and
wholesaling. Imports and exports as a share of GDP
together doubled from 18% in 1984 to 37% in 1992.
Slide 17
More Successes of Structural
Adjustment in Ghana
• Note that those who benefited the most from the
ERP were big local and foreign capitalists or
businessmen who were engaged in gold mining and
timber industries, and rural, cash crop and cocoa
farmers, who benefited from the devaluations and
producer price increases.
• Ghana received official aid, long-term loans, and
private transfers constituting 9% of GDP. It also
received about $4 billion in concessional loans and
grants between 1983 and 1991.
Slide 18
Costs of Structural Adjustment in
Ghana
• Costs of the ERP/SAP in Ghana
• 1. There were grave inequities in the distribution of the benefits of
economic growth. Students and urban workers went on strike in the
1980s, and nurses went on strike in 1986 regarding wages, but the
PNDC government cracked down on these shows of agitation.
• 2. Real wages remained low and income growth was slow, while the
level of poverty was high. Between 1987 and 1988, 36% of
Ghanaians lived below the poverty line. In the years 1987-1990,
poverty levels worsened.
• 3. Urban unemployment rose due to PNDC retrenchment policies
and withdrawal of subsidies from public services. Many public
service workers were laid off, and the cost of living rose as subsidies
on health and education were withdrawn.
Slide 19
More Costs of Structural Adjustment in
Ghana
• 4. Between 1987 and 1988, the civil service lost 24,000
people, and 12,000 more civil servants were to be let go in
1989, a big blow to the Civil Servants Association (Nugent
1996: 184). The cost recovery policy on health, education, and
public utility services led to a decline in real wages. By 1993,
unemployment had risen to 13%.
• 5. The Trades Union Congress (TUC) leadership consistently
opposed the withdrawal of public subsidies, particularly on
petroleum, and was always at odds with the PNDC over the
daily minimum wage, which Bank/IMF SAP policies sought to
keep down (Nugent 1996: 148).
• These major woes led to the PNDC’s creation of PAMSCAD,
the Programme of Action to Mitigate the Social Costs of
Adjustment.
Slide 20
Programme of Action to Mitigate the
Social Costs of Adjustment
• The PAMSCAD cost US$85 million and began in 1988.
• 1. It sought to create 40,000 jobs over a two-year period. It
was aimed at the poorest individuals, small-scale miners and
artisans in particular, and communities were to be helped to
implement labor intensive self-help projects.
• 2. ¢10 billion was slated in the 1993 budget for the
rehabilitation and development of rural and urban social
infrastructure. This was organized through PAMSCAD and the
new district assemblies, and was to focus on improving water
supply, sanitation, primary education, and health care.
• 3. An additional ¢51 billion was set aside for redeployment
and end-of- service benefits for those who had lost their jobs
in civil service and parastatal organizations.
Slide 21
Programme of Action to Mitigate the
Social Costs of Adjustment
• Many shortcomings, including insufficient funds to
finance projects, characterized the PAMSCAD and
reduced its effectiveness.
• Ultimately, PAMSCAD had a very limited impact and
was unable to adequately address the problems
faced by those who suffered due to the SAP. The
PAMSCAD tried but failed to bring a human face to
the effects of the adjustment policies.
• Question: What were the major successes and costs
of the ERP/SAP in Ghana?
Slide 22
Topic Three
POVERTY REDUCTION STRATEGIES
IN THE QUEST FOR DEVELOPMENT
Slide 23
Poverty Reduction Strategies in the
Quest for Development
• We examine poverty reduction strategies pursued in
developing countries, using Ghana as an example, as
alternative to the costly structural adjustment program
carried out in Ghana.
• In the late 1990s, the World Bank and IMF began to shift to a
policy that focused on Poverty Reduction Strategies that
would be spelt out in Poverty Reduction Strategy Papers.
• The Poverty Reduction Strategy Paper (PRSPs) describes a
country's long term vision. The paper is prepared by lowincome country governments in consultation with various
stakeholders such as civil society and the private sector. The
paper sets out macroeconomic, structural, and social policy
goals.
Slide 24
Poverty Reduction Strategies in Ghana
• Countries, like Ghana, have used PRSPs to address their
investment climate and prescribe measures to promote
private sector development, or to improve governance
and reduce corruption.
• The PRSPs concentrate on issues facing the agricultural
sector and rural areas, and stress the need for
investment in key basic services, particularly health and
education in implementing their strategies. This is in
stark contrast to the SAPs, which recommended cuts in
health and education subsidies.
Slide 25
Poverty Reduction Strategies in Ghana
• Both the World Bank's International Development
Association (IDA) and the International Monetary Fund
(IMF) require a Poverty Reduction Strategy Paper in order
for low-income countries to receive lower cost financial
assistance from the Bank (through IDA) and the IMF
(through its Poverty Reduction and Growth Facility).
• When a government takes the lead in preparing and
implementing its own strategy, development efforts are
more likely to succeed. Other key factors of success
include tailoring aid to particular country circumstances
and coordinating aid with other donors for maximum
impact.
Slide 26
Poverty Reduction Strategies in Ghana
continued
• It is important to note that poverty is more than just lack
of income – it is also lack of opportunity, security or voice
in key decisions. In Ghana, the Bank's over-arching goal is
to support the country's growth and poverty reduction
objectives.
• For example, the Bank has proposed to help Ghana
sustain economic growth of at least 6% per year; surpass
the 2015 Millennium Development Goal of halving
poverty; and start to reduce inequalities.
• Note that the Bank itself seems to have moved toward a
broader conception of development, in its increased
focus on the reduction of poverty and inequalities.
Slide 27
The Impact of Poverty Reduction
Strategies in Ghana
• The Impact of Poverty Reduction Strategies in Ghana
• Ghana’s fight against poverty has involved a special focus on
rural development.
• In 2001, the economy was characterized by large fiscal deficits
and a heavy debt burden, a combination of which placed
severe limitations on the nation's capacity to address poverty.
• Following Ghana’s application to the Enhanced Highly
Indebted Poor Country (HIPC) facility in 2001, the government
formulated the Ghana Poverty Reduction Strategy (GPRS I),
which was implemented over the period 2003-2005. The
process of formulating the GPRS I was participatory.
Slide 28
The Impact of Poverty Reduction
Strategies in Ghana
• Following the positive results achieved by the GPRS I, The
Government launched a successor national development
policy framework - the Growth and Poverty Reduction
Strategy (GPRS II) – which was implemented over the
period 2006-2009. The strategic direction of the GPRS II
was to accelerate economic growth and poverty
reduction by supporting the private sector to create
wealth.
• Assignment: Find out more about (research) the GPRS I
and GPRS II, and briefly explain the difference between
the Ghana Poverty Reduction Strategy I (GPRS I) and the
Growth and Poverty Reduction Strategy II (GPRS II).
Slide 29
Conclusion of Session 8
• In this session, we have discussed what the SAP in
Ghana entailed, why Ghana embarked on the
ERP/SAP in 1983, and what some of the major
successes and costs of the ERP in the 1980s were.
• We have also delved into poverty reduction
strategies as an alternative to the former SAPs
introduced by the World Bank and IMF. You have
learned what the Bank’s PRSPs are, and how in
Ghana these were implemented as GPRS I and GPRS
II. Both the GPRS I and the GPRS II were quite
successful at beginning to reduce poverty in Ghana.
Slide 30
References
• Todaro, Michael. 2000. Economic Development.
England: Pearson Education Limited.
• http://digitalmedia.worldbank.org/projectsandops
/strategy.htm
Slide 31