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1
The Washington Consensus rules still? Ghana’s shrinking poverty
despite rising inequalities
Tony Killick1
1. Introduction
Sir Richard Jolly’s contributions to the welfare of peoples in poor countries have
been both huge and multi-faceted and I am delighted to have the chance to
contribute to this celebration of his work and influence. He has left an enormous
legacy through his leadership of IDS and his powerful influence at UNICEF. Although
arriving via an academic route, the ivory tower was not for him – always seeking to
influence policies in favour of the vulnerable in developing countries, always
campaigning for justice and humanity. His contributions to the literature have been
equally large and his name will for ever be linked to the notions of Redistribution with
Growth (Chenery et al, 1974) and Adjustment with a Human Face (Cornia et al,
1987).
The purpose of this paper is to explore the economic history of Ghana over the last
three decades against the background of the framework of policy thought
espoused in those seminal works. I am particularly interested in the extent to which
the extraordinarily rapid recent decline in consumption poverty in Ghana, despite
increasing inequalities, can be explained in terms of the kind of policy stance
advocated in those works. It turns out to be a mixed record. Records almost always
are mixed.
I shall first set out the main facts of the poverty record, then discuss the influences
that have contributed to the outcomes, finally attempting some speculative
conclusions that might be drawn. The paper draws heavily on the recentlypublished second edition of a study of economic policies in Ghana I first published in
1978 (Killick, 2010 – hereafter just referred to as ‘K’ followed by the relevant page
number).2
2. The poverty record
Ghana’s recent economic history has been dominated by a huge, decade-long
collapse that occurred in 1973-83, described below as the Black Years, and the
subsequent recovery from this. The collapse was marked by a rejection of any
recognised norms of economic management, leading to a hugely over-valued
currency (the cedi), collapses in recorded external trade and government revenues,
the rise of eye-watering levels of rent-seeking, large-scale deficit financing and rapid
monetary expansion, culminating in triple-digit inflation. So far as the statistics can
be relied upon, real per capita income fell by a third.
Inevitably, the initial concentration of the reforming government in power under
Jerry Rawlings during 1983-2000 was on macroeconomic stabilisation, through its
Economic Recovery Programme (ERP). This phase lasted until the early-1990s. Since
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then successive governments have pursued more growth-oriented development
policies and this transition has been accompanied by a widely applauded (albeit
imperfect) process of political democratisation. The most recent years, from about
2002 and with a slowdown in 2008-09, have experienced by far the most rapid
sustained economic expansion since independence in 1957, with per capita income
growing more than twice as fast as in any earlier period.
What now of the poverty record? We only have reliable and comparable data
from the early-1990s. Prior to that, there is evidence to suggest the following:
a) In the black years of 1973-1983 there is ample evidence that poverty
increased (UNICEF, 1988). It could hardly be otherwise, with average incomes
falling so fast. There were large declines in real earnings from wage
employment, as well as in the real value of payments to the country’s cocoa
farmers. There were massive declines in real government expenditures on
health and education. Indicators of morbidity, mortality, malnutrition and
educational attainment all worsened. It appears that town-dwellers were
particularly hard-hit, with rural households in a better position to protect
themselves from food price inflation through subsistence production.
b) The stabilisation years following 1983 through to the early-1990s probably saw
some reductions in poverty levels but the evidence base is weak and has to
be set against the background of per capita income rising disappointingly
slowly, at only 1% to 1½% p.a.3 Early GLSS results record improvements but
there are comparability problems with these data and participatory survey
information points to only limited progress.
c) From the early-1990s the evidence base is much better, derived from GLSS
surveys comparable over time. The results are summarised in Table 1. Most of
the rest of this paper is taken up with discussion of the reasons for the large
improvements revealed.4
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Table 1. Consumption-based poverty measures for Ghana, 1991-2006
1991/92
National
headcount (P0) (%)
depth (P1)
severity (P2)
Urban
headcount (P0) (%)
depth (P1)
severity (P2)
Rural
headcount (P0) (%)
depth (P1)
severity (P2)
Rural savannah
headcount (P0) (%)
depth (P1)
severity (P2)
1998/99
2005/06
51.7
0.19
0.09
39.5
0.14
0.07
28.5
0.10
0.05
27.7
0.07
0.03
19.4
0.05
0.02
10.8
0.03
0.01
63.6
0.24
0.12
49.6
0.18
0.09
39.2
0.14
0.07
73.0
0.31
0.16
70.0
0.32
0.18
60.1
0.25
0.14
Source: World Bank, 2007, III, Table 1.1.
There are three comparable, GLSS-based, estimates to compare, beginning with the
1991-92 survey. This estimated that, in the country as a whole, more than half (51.7%)
were still living below the national poverty line. Overwhelmingly, consumption
poverty was shown to be a rural problem, with four-fifths of the poor living in rural
locations, but there were large regional variations. The next GLSS-based estimates
related to 1998-99. Compared with the 1991-92 figures, these revealed a complex
pattern of change. The overall poverty headcount was down, from 51.7% to 39.5%
in a major but uneven improvement. In broad terms, poverty declined in the
southern parts of the country but not in the northern half.
The most recent survey results, for 2005-06, reveal major improvements in all zones,
including those starting with the highest poverty counts. The national average was
down to 28.5%, implying that about five million people had risen above the poverty
line since 1998/99. Moreover, measures of the depth and severity of poverty (P1 and
P2) also improved, both overall and within each zone. Moreover, this improvement
was achieved despite an increase in consumption inequality, with the Gini measure
rising from 0.35 in 1991-92 to 0.38 in 1998-99 and 0.39 in 2005-06.5
A fall in the head count from 51.7% to 28.5% in the course of about twelve years,
when inequalities were growing, is astonishing, in a variable which is usually rather
slow-moving. It is so dramatic as to pose questions about the reliability of the
estimates. However, those who have researched Ghana’s poverty situation find that
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the improving trends are supported by additional, independent, evidence.
Coulombe and McKay (2003) cite the results of demographic and health surveys as
consistent with the 1998-99 GLSS results. Similarly, the authors of a 2007 World Bank
study draw attention to the consistency of the GLSS results for 2005/06 with the
outcomes of independent surveys focussing on core welfare indicators undertaken
over roughly the same period (World Bank, 2007, III:11).
A similar record of, sometimes rapid, improvement is illustrated by the wider MDGbased indicators in Table 2, based on research by the Overseas Development
Institute (2010). All in all and with all due allowance for the awful quality of the
country’s social statistics, there seems no doubt that large strides have been made
in recent years.
Table 2. Changes in welfare indicators since the early-1990s
Welfare indicator
1. % population below $1.25 p.d.
2. under-five child mortality (per 1000)
3. % underweight children
4. % below minimum dietary energy
consumption
5. primary school enrolment ratio (%)
6. ratio of girls to boys in primary school (%)
7. one-year-olds immunised against measles
8. % births attended by skilled health
personnel
9. access to improved drinking water (% of
population)
early-1990sa
51
120
27
34
latestb
30
115
18
9
54
85
61
44
72
99
95
50
63
82
Notes: a: Most entries relate to 1991-93. The figure for item 9 is for 1995.
b; Most entries relate to 2006-07. The item 4 entry is for 2004; the item 9 entry is for 2008.
Source: Culled from ODI, 2010, data annex.
However, note the substantial exception to this recorded in the entries for the ‘rural
savannah’ in the bottom set of entries in Table 1, relating to the quarter of the
country’s total population living in rural areas in the northern part of the country. A
severe dichotomy is revealed. As of 2005-06 citizens in the rural north were more
than twice as likely to be living in poverty than the population as a whole, with that
inequality increasing over time. Every other zone was below the national headcount
average. The contrasts in the measures of the depth and severity of poverty reveal
even larger and more rapidly widening discrepancies. By 2005-06 the 23% of the
rural population living in the rural savannah zone were accounting for seven-tenths
of all the country’s recorded consumption poverty. I will revert to this issue later.
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3. The role of adjustment in poverty reductions
With income inequality tending to increase and (as argued below) limited action by
successive governments to target the poor, it seems that it is to the growth record
that we must look in order to explain the poverty reduction. Per capita income grew
at only a little over 2% p.a. over the period covered by Table 1, accelerating in the
later years.6 After the years of decline and then only gradual recovery, the
economy was responding to the reform efforts of the 1980s and beyond, and in
ways favourable to the wellbeing of many of the poor.
In fact, Ghana has the reputation of being a model example of the kind of
conventional adjustment policies which Adjustment with a Human Face was
concerned about so it is worth spending time considering the country’s record in this
regard. A convenient way of putting this to the test is to assess post-1983 policy
changes against the prescriptions of the ‘Washington consensus’. Although the
debate has since moved on, the intellectual influence of the ‘Consensus’ remains
large. In his well-known contribution, its policy prescriptions were conveniently
catalogued by John Williamson (1989) as comprising the following components:
1. Fiscal policy discipline;
2. Redirection of public spending from subsidies ("especially indiscriminate
subsidies") toward broad-based provision of key pro-growth, pro-poor services
like primary education, primary health care and infrastructure investment;
3. Tax reform – broadening the tax base and adopting moderate marginal tax
rates;
4. Interest rates that are market determined and positive (but moderate) in real
terms;
5. Competitive exchange rates;
6. Trade liberalisation – liberalisation of imports, with particular emphasis on
elimination of quantitative restrictions (licensing, etc.); any trade protection to
be provided by low and relatively uniform tariffs;
7. Liberalisation of inward foreign direct investment;
8. Privatisation of state enterprises;
9. Deregulation – abolition of regulations that impede market entry or restrict
competition, except for those justified on safety, environmental and
consumer protection grounds, and prudent oversight of financial institutions;
10. Legal security for property rights.
To what extent have policy reforms conformed to these prescriptions?
1. Fiscal policy discipline. In summary, there was a major improvement in fiscal
management with the inception of the Economic Recovery Programme but
spending discipline was spasmodic, particularly with the emergence of an
electoral cycle following the advent of competitive politics. In the more
recent years, discipline was strong only in 2002-05 (K:chapt 13). Overall,
Youngblood and Franklin’s conclusion for the 1990s (2008:92) that there was
“a failure of the government to rein in spending and bring deficits down to
levels that could be comfortably financed” could also be applied to later
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years. While the worst excesses were usually avoided, fiscal discipline
remained a weak spot.
2. Redirection of public spending away from subsidies in favour of social spending
and infrastructure. Here too the evidence is no better than mixed. With the
privatisations that have occurred, fewer demands are now made on the
budget to subsidise loss-making public enterprises. Moreover, although fiscal
statistics do not allow us to know whether there has been a relative shift in
spending in favour of the primary social services, there appears to have been
real progress in education, less so in health. In the same years Ghana had
above-average spending on infrastructure. However, the subsidisation of
fuel, power and water remained a large drain on the budget, and there were
doubts about the quality of much of the social and infrastructural spending.
3. Tax reform. There have been major improvements here. The punitive taxation of
cocoa and other export commodities has been ended. A value-added tax
was successfully introduced in 1998 and this considerably broadened the tax
base. The income tax was rationalised and trade tariffs simplified.7
4.
Interest rates. Chapter 14 discussed the considerable extent to which the
financial sector was liberalised in the ERP and in subsequent reforms. As a
result, interest rates are indeed now largely market-determined, with the
monetary authorities seeking to exert influence indirectly through the market
rather than by direct regulation. Nominal interest rates have come down and
generally meet the criterion of being ‘moderately positive’ in real terms
(although not for retail savers with commercial banks, who still face negative
rates). Financial liberalisation is the big story here.
5. Exchange rate. Early moves from 1983 to restore sanity (and competitiveness) to
the exchange rate was of decisive importance. Exchange rate flexibility has
remained in place ever since and IMF staff assess that the actual (real)
exchange rate now approximates the equilibrium rate.
6. Trade liberalisation. There is little systematic and up-to-date evidence on this but it
is clear that the trend has been towards liberalisation. The exchange rate
actions were themselves a huge change in this direction. The previous
elaborate system of import controls was abolished in 1989 for all except a
small number of items. Tariff levels have been both reduced and simplified.
A special sales tax on imports has been replaced, at a lower level, by the
VAT. There has been a partial liberalisation of capital account transactions.
The movement of trade policy towards liberalisation is clear.
7. Foreign direct investment. Here too, we have been unable to find systematic
and up-to-date evidence. It appears, though, that there was not a great
deal of FDI, except in mining and oil extraction. Overall, however, it seems
clear that the climate for FDI has greatly improved since the early-1980s, not
least through improvements in companies’ ability to repatriate capital and
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profits, not to mention the exchange rate liberalisation and stabilisation of the
political situation. Perhaps the best evidence comes from a World Bank
report on the investment climate (2007-II, chapter 3). This surveyed the
opinions of the managers of enterprises (indigenous and foreign) about what
they saw as the main constraints facing their businesses and showed rather
low levels of concern about the factors that usually most exercise foreign
investors: macro instability, tax administration, corruption, trade and customs
regulation, licensing and regulation. There was some concern about tax
levels but overwhelmingly the largest worry, relevant to foreign investors, was
erratic power supplies. Another World Bank initiative, comparing the ease of
doing business across countries, has consistently placed Ghana among the
most vigorous reformers and one of the best countries in which to do business
in Africa.8 Overall, it is evident that the trend has been in the direction
favoured in the Washington Consensus.
8. Privatisation. The record shows that a lot of small- and medium-sized enterprises
have been privatised or wound up, as well as a few more important ones, but
that there has been much political ambiguity and foot-dragging. A number
of major enterprises long earmarked for privatisation remain in public
ownership and remain recipients of large budget subsidies.
9. Deregulation. The discussion of FDI liberalisation in item 7 above covers much of
this. So far as financial institutions are concerned, this is an area where the
‘deregulation’ mantra of the Washington Consensus has been overtaken by
experience. The emphasis today is much more on ensuring prudential
regulation and Ghana has moved strongly in this direction. Under the ERP
and beyond there was a major effort to clear up a huge overhang of nonperforming loans and raise the capital security of the banks. Much more of
the work and reporting of the Bank of Ghana is nowadays addressed to the
soundness of the financial system and its effective regulation, and recent
evidence shows major improvements in banks’ asset quality and capital
adequacy (Bawumia et al, 2008, Table 1).
10. Property rights. This relates both to the extent to which legislation safeguards
property rights and the efficacy of the judicial system in applying the
safeguards. In the nature of things, this does not lend itself to brief
summarisation. Perhaps the best attempt is in the (admittedly eccentric)
‘index of economic freedom’ maintained by the Heritage Foundation.9
Property rights are one component of this and, for what it is worth, its 2009
score for property rights in Ghana was 50%.
In summary, viewing all ten of these components, the answer to whether the
changes to Ghana’s framework of economic policy since 1983 reflected the
changes in development thinking embodied in the Washington Consensus depends
on the level of detail that is examined. In broad thrust, the congruence is obvious;
in finer detail the record is mixed.10 On a long view the broad thrust matters most.
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Although good luck has also played a part, it is justified to view Ghana’s economic
recovery – and the poverty reduction which has accompanied it – as a successful
example of the application of conventional structural adjustment policies.
What is it, then, that has made Ghana’s growth path so efficient in lowering national
poverty rates?
First and perhaps most important of all, it has been a path which has created a
large number of new jobs. GLSS data indicate that wage employment nearly
doubled (+96%) between 1991/92 and 2005/06, with nearly 4 million extra jobs.
Indeed, World Bank staff were able to make the remarkable claim that
“Unemployment overall does not seem to be a major problem”, although it qualified
this by acknowledging that there was still appreciable unemployment among the
young and in major cities, notably Accra (World Bank, 2007 III).
This labour-intensive growth path had two other notable characteristics. First – and
again this was unique in the country’s post-independence history – most of the new
jobs were created in the private sector, mainly in the 2000s (although there was also
a sizeable rise in the number of public-sector workers). For the first time, by 2005/06
the number recorded as employed in the private sector exceeded the public
sector.11 This evidence of the rapid relative and absolute expansion of private
(mainly SME) business is reinforced by other data showing a rapid rise of private
sector capital formation over the same years, again both absolute and relative
(K:Fig. 14.1).
There are good reasons for relating this expansion to reduced macroeconomic and
political uncertainty in the period we are dealing with. We can expect private
investment to be highly sensitive to uncertainty. Investors are apt to have a strong
aversion to risk because much investment is irreversible or reversible only at
prohibitive cost. There is empirical evidence in support of such sensitivity in Ghana;
both Patillo (1998) and Asante (2000) found Ghanaian investors to have the
predicted aversion to uncertainty.
The point here is that, after the chaos of the Black Years, uncertainties gradually
reduced. The ERP succeeded in the 1980s in reducing both inflation and the
variability of this. There remained considerable political uncertainty, however, with a
number of unsuccessful coup attempts and ambivalence on the part of Jerry
Rawlings about the desirable role of the private sector. During the 1990s the
commitment to macro stability weakened.
Inflation (and exchange rate)
uncertainties were increased, although without going all the way back to the
chronic conditions of the Black Years. At the same time, however, confidence grew
in the political system, with the establishment of electoral processes and gradual
strengthening of democratic institutions. Then, in the first years of the 2000s macro
and political stability came together. The country’s leaders demonstrated their
commitment to democratic norms and the 2000 election brought into office a party
9
unambiguously committed to a strong private sector; inflation was reduced again
and became more predictable. The perceived riskiness of investment declined. It
turns out that this was not only good for private investment but also to employment
creation, and therefore to poverty reduction too.
A further consequence of a growth path led by the private sector was that it was
broad-based. With most poverty occurring in the villages, it was especially significant
that the job creation was by no means restricted to the towns. Half of the new jobs
were created in the rural economy, most notably in agriculture.12 There is evidence,
too, of productivities rising in agriculture (K:434).
Another aspect of the reform period and beyond was that governments scaled
back their taxation of (largely smallholder) cocoa farmers, particularly in the latter
part of the period, as illustrated by the following data on the percentage of cocoa
export proceeds received by farmers (K:434):
1975-80
35
1988-93
44
2000/01
50
2006/07
72
Cocoa was no longer a milch cow. In fact, in 2006 the government guaranteed
that farmers would receive at least 70% of the net f.o.b. export price in any given
year. While the country’s cocoa farmers have never been among the country’s
poorest, many poor people depend upon this important cash crop, directly or
indirectly, and the large rise in the real value of payments to the farmers surely
contributed to the decline in poverty, particularly after 2000.13
Against the background of on-going controversies about the impact of external
trade on poverty, I should draw attention to the remarkable extent to which the
growth of the recent past has been trade oriented. Recorded trade collapsed
during the black years, with the trade ratio shrinking from 20% of GDP in 1972 to a
mere 3% in 1982 (although there was doubtless an expansion of unrecorded trade in
the same years). A bounce-back was to be expected with the introduction of
exchange rate and other adjustment reforms and the ratio was back to the pre-crisis
levels by the late-1980s. But this was more than a bounce-back, for the ratio has
continued its upward climb, standing at 48% by 2008. While imports grew most
rapidly, between 1982 to 2008 exports relative to GDP rose from 3% to 33%. A
markedly open growth path is thus revealed as consistent with – and no doubt a
contributor to – rapid poverty reduction. However, a probable explanation of the
persistence of poverty in the rural north lies in its inability to participate much in this
trade-led rise in incomes.
10
One further aspect of the economy’s recent revival that must be mentioned is the
rapid rise in the economic importance of the Ghanaian diaspora and their
remittances.14 Large numbers of Ghanaians live outside the country. According to
Rado, during the Black Years the country lost one-half to two-thirds of its
“experienced, top-level professional manpower,”15 while Dzorgbo (1998:264) claims
that during the Acheampong period “over one million Ghanaians - mainly high and
lower level professionals and technocrats - voted en masse with their suitcases and
left the country…” Besides the skills and enterprise they bring with them, their money
is important too. Official (under-) estimates place these as equivalent to a fifth of
GDP. Another (over-) estimate puts it at nearly half of GDP. There is a serious case
for a figure of two-fifths of GDP but, whatever the precise number, it is clear that
remittances are huge. On anything like the scale indicated, they cannot fail to
have major inputs into living standards. Recent research suggests that these inflows
(as distinct from internal remittances) do not contribute to poverty alleviation to the
extent that might have been expected, tending to flow to already relatively well-todo households. Indeed, they may be an important reason why consumption has
increased in recent years.16 Nevertheless, in absolute terms a substantial amount of
inflows do go to poor households and the same research shows that among
households that do receive international remittances, these receipts reduce their
poverty head count by nearly nine-tenths (88%).
The point here is that the emergence of remittance inflows should be seen as a
response to the policy reforms, and associated investment climate, instituted from
1983. The restoration of sanity to the exchange rate, gradual liberalisation of the
financial sector and development of financial services that facilitated remittance
transfers and improvements in the investment climate, mentioned earlier, are all
likely to have contributed substantially to the growth of remittance inflows.
4. How much of a Human Face?
To what extent might the recorded poverty improvements be attributable to
implementation of the types of policy reorientations advocated in Adjustment with a
Human Face? On the face of it, policies did respond. In 2003, for the first time, the
government published a Ghana Poverty Reduction Strategy (GPRS) (and a second
one in 2005).17 Moreover, it started the process of preparing this before the
preparation of such strategies became built into the conditionalities of aid donors
and creditors. It is unclear, however, whether much of this improvement could be
attributed to the GPRS and to policies specifically aimed at the poor. Neither the
NDC or the NPP administrations placed a high priority on raising the welfare of the
poor in these years (although I am not suggesting that they were actually hostile).
The NPP was clear that its priority was to raise investment and growth. Its 2000
election manifesto did not so much as mention the word poverty, let alone present
anti-poverty policies. It is fair to view the successive PRSs as largely aspirational –
and as a necessary vehicle for the mobilisation of external aid.
11
One way of taking this topic forward is to set policies against the various
components of the policy orientations advocated in Adjustment with a Human
Face. These were summarised as follows (Cornia et al, 1987:290-91)
1. More expansionary macroeconomic policies
2. The use of meso policies to favour the poor and vulnerable
3. Sectoral policies to raise employment and productivities, especially in
smallholder farming and informal activities
4. Improving the equity and efficiency of the social sector, e.g. by improving
targeting
5. Compensatory programmes, e.g. public works employment schemes and
nutrition interventions
6. Improved monitoring
Applying these criteria to policies in Ghana in the 1990s-2000s, the position can be
summarised as follows:
1. Fiscal/monetary policies were never very restrictive anyway, with substantial
public sector deficits, considerable monetary expansion and continuing
inflation throughout almost all the period (see earlier). However, I would
argue that the reasons for this had rather little to do with poverty concerns
and a great deal to do with the working of a still patronage-dominated
political system (K:465-75).
2. There were important changes in meso policies in these years but it would be
hard to relate these in any systematic way to a desire to promote the position
of the poor. For example, a major tax reform was the introduction of a VAT
whose equity effects were uncertain, at best. It would be similarly hard to
explain the (important and much overdue) reduction in taxation of cocoa
farmers in poverty-reduction terms.
3. It is probably fair to say that successive governments did not articulate clear
policies in the area of sectoral priorities. The main exceptions to this were the
vigorous support of the (FDI-generated) reinvigoration of gold mining,
beginning in the later-1980s, and creation of an important oil-extraction
industry in the most recent few years. At the same time, while there was
official rhetoric in favour of smallholder agriculture and the informal sector, it is
not clear that effective measures were put in place.
4. As regards the social sector, only limited progress was made in targeting the
poor in the years under review.18 The statistics in Table 2 show some major
gains, e.g. in primary school enrolment, in the primary school gender gap and
in child immunisation against measles. In other areas there was less progress.
Overall, the record in education was better than in health. An ODI evaluation
of the effects of budget support in the years to 2005-06 (2007 pp.9-10) found
improved access of the poor to education. This was partly a result of a state
12
grants scheme to help poorer parents with school fees, although ODI also
noted that the increased enrolments were stretching parts of the system
“beyond capacity”, e.g. resulting in shortages of textbooks and qualified
teachers. In health, ODI noted that “Increases in the level of health funding
have yet to translate into commensurate improvements in the scale and
quality of health services provided…There has been a long-running failure to
find a sustainable and satisfactory resolution of the problem of meeting
health user fees for the poor.” In this sector too, key inputs became spread
too thinly, resulting, for example, in a large number of new clinic buildings
remaining unutilised because of unavailability of staff and other inputs.
5. As regards compensatory measures to reduce the adverse impact of
adjustment measures, a package of measures was set out in 1986, under the
acronym PAMSCAD. In effect, this was a precursor to the GPRS but, by
universal consent, was essentially aspirational and ineffective. There were no
significant food interventions (except in some schools) and no major public
works job-creation programmes. Against this, there has been a consistent,
long-term tendency to create jobs by expanding the size of the public
service, so that the wage bill now dominates the public finances. No doubt,
a good many poor people have benefited from this form of job creation,
even though it is again easiest to understand this trend in terms of the
workings of a patronage-based political system, as against a thought-through
anti-poverty strategy.
6. Without doubt, monitoring of the social situation and of poverty has been
much improved, both through the periodic GLSS surveys and other more
narrowly-based surveys. This achievement is all the most impressive against
the background of a national statistical service that in many other respects
remained chronically weak in these years.
In fact, one factor to bear in mind in considering the country’s policy responses to
poverty is the poor condition of the civil service. The GPRS was quite explicit about
this, referring to “unacceptably poor conditions” in the public service and stating
that, “Significant improvements in the latter represent a component without which
the government reform programme and the Ghana Poverty Reduction Strategy are
unlikely to succeed (2003:119).” There was little improvement in the immediately
following years (K:469-70). In other words, it is open to doubt how far Ghana could
have got with implementing a strategy of adjustment with a human face even if the
political will had been there, given the limited capacities of the civil service. In the
diplomatic words of the ODI report (2007:12), “The ability of current processes of
sector policy formulation, budget preparation and execution to convert allocations
into actions would need to be strengthened. Strategies are often poorly conceived,
the budget structure does not permit the use of programmes as a focus for budget
allocation and service management, and budget execution continues to deviate
sharply from planned budgets.”
13
5. Qualifications and conclusions
It appears from the above that the accelerating growth of the last three decades
has been built upon adjustment policies and private sector development essentially
reflecting the priorities of the Washington Consensus. As was made clear earlier, the
country’s record has been far from a pure case of execution of the Consensus
policies. There have been deviations and a good deal of foot-dragging but we
suggested that the broad thrust of the policy reforms of the period has, with the
active encouragement of the Bretton Woods institutions and other donors,
conformed to the type of policy strategy they favoured.
With such policies came much increased development assistance, equivalent to
over 10% of GDP in 1988-2006. Surveying the evidence I conclude (K:451-53) that,
aside from short-term movements, there is a broad association between the higher
aid levels from the late-1980s and the recovery of per capita incomes from that
time. Aid allowed more imports and government capital formation than would
otherwise have been consistent with anti-inflation targets. There were two specific
episodes when outside support – conditional upon the policy reforms – were
probably critical. First, the rapid rise in assistance during the early reform years was
surely of crucial importance to the sustainability of the reforms of that period. It is
likely, as Herbst (1993:36) suggests, that, in an initially deeply divided government,
World Bank-IMF money and intellectual influence were crucial in tipping the balance
in favour of reform. Second, HIPC debt relief in the early 2000s greatly reduced the
country’s external debt overhang. Without this relief and assuming full servicing of all
obligations, the demands of interest payments and principal would have absorbed
much of the economy’s foreign exchange and government revenues. It would
probably also have discouraged private investors. As it was, it is reasonable to think
that debt relief accelerated economic recovery after 2002 and the poverty
reduction which came with it.
The improved performance was not just a matter of policy reform and aid, however.
There was some good luck too. Ghana’s two most important export commodities in
these years were gold and cocoa (recently joined by oil) and, although unstable,
the prices of these have shared in the relative rise in commodity prices of recent
years. Given the close association between poverty and family size, another factor
to record has been a slowing-down in population growth. The UN estimates the
population growth rate in 2000-05 as 2.2% p.a., compared with 3.2% in the 1990s.
Most of this reduction appears to have been due to declining birth rates (K:422)
(although the data are not good enough to be sure). The extent to which these
demographic trends should be regarded as endogenous or exogenous with respect
to the performance of the economy is, as ever, a moot point, beyond the scope of
this paper.
The general message that emerges, however, is that Ghana’s remarkable recent
achievements in reducing poverty owe most to conventional adjustment measures
(plus the aid which came with them) and only a limited amount to ‘human face’
14
actions by successive governments. This, of course, is not to deny that progress with
human welfare would have been even greater – and geographically more evenly
distributed – had governments given higher priority to pro-poor measures. What
Ghana’s record does appear to indicate, however, is that even without such
measures conventional adjustment policies can bring major benefits to the poor. As
is emphasised in Adjustment with a Human Face, it all depends on the composition
of the growth. The broad-based and labour-intensive nature of Ghana’s recent
growth path was probably decisive.
Apart from this broad conclusion, a few more specific points emerge from Ghana’s
recent economic history:
a) The terrible and lasting damage can be done by ignoring macroeconomic
fundamentals. In Ghana macro management came to be abandoned
during the Black Years of 1976-82. In consequence, the economy imploded,
incomes shrank, poverty multiplied, much of the human and physical
infrastructure was lost and confidence in the future was destroyed. It took 35
years for average incomes to recover to their 1972 levels. Rejecting the basic
precepts of macroeconomic management has a dreadful power to
impoverish.
b) Relatedly, this case study demonstrates the dominant importance for the
welfare of the poor of the overall policy framework and the economy’s
response to this. Targeted ‘human face’ measures can, of course, help
safeguard against a situation where most of the benefits of economic
expansion accrue to the already relatively well-to-do. But little progress can
be achieved in the absence of broader growth – and the Ghana case
appears to show that unmediated growth alone can achieve a lot.
c) It also shows that there is no necessary incompatibility between rapid poverty
reduction and even more rapid opening up of the economy. As noted
earlier, the country’s recovery has been export-led, with dramatic sustained
increases in trade ratios (recall the export ratio rose from 3% to 33%).
d) Ghana also shows the limitations of just relying on general and export-led
growth, however, for we have seen that it has largely left behind about a
quarter of the country’s population living in the rural north of the country
(Table 1). To a large extent, the country’s remaining poverty is grounded in
ecological-regional determinants.
Major further progress in raising the
position of the remaining poor and the intensifying regional inequalities will
surely require the adoption of substantial, vigorous and sustained policies of
regional equalisation – always assuming the public service has the capability
to implement such a programme.
e) Finally, in considering the connection between poverty and income
inequality, it may be worth distinguishing between functional and
dysfunctional inequalities. During the Black Years, as the gap between
15
official and black market exchange rates widened increasingly huge rents
were to be made out of gaining access to forex at the official rate and selling
it on the black market (at its peak the black market forex rate was over 20
times higher than the official rate – just imagine the fortunes to be made!).
The same was true of import licenses and other devices for securing goods at
official controlled prices and selling them on at far higher effectively
unregulated prices. For a favoured elite, mainly associated with senior military
figures, there were large fortunes to be made by exploiting these price
distortions and the wholesale use of bribery for opportunities to do so was a
predictable outcome.
Inequalities grew and these were entirely
dysfunctional, resulting not from productive enterprise but from contacts,
cronyism and corruption, from what Frimpong-Ansah (1991) described as a
“vampire state” which was rapidly destroying the modern economy. By
contrast, the rising inequalities of recent years can (in the absence of hard
evidence) plausibly be viewed as a predictable outcome of a growth
generated by the rapid expansion of the private sector. The rise of such
inequalities may be unwelcome but it has the saving grace of its association
with an accelerated economic expansion which also benefits the poor.
(end)
16
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remittances on poverty and inequality in Ghana.’ World Bank Policy
Research Working Paper 4732; September 2008.
Aryeetey, Ernest, Jane Harrigan and Machiko Nissanke (eds), Economic Reforms in
Ghana: The Miracle and the Mirage. London: James Currey. 2000.
Aryeetey, Ernest and Finn Tarp, ‘Structural adjustment and after: which way
forward?’ in Aryeetey et al (eds), op cit, 2000.
Asante, Yaw, ‘Determinants of private investment behaviour.’ AERC Research Paper
No. 100. Nairobi: African Economic Research Consortium, 2000.
Bawumia, Mahamadu, Theresa Owusu-Danso and Arnold McIntyre, ‘Ghana’s
reforms transform its financial sector.’ IMF Survey, 22 May 2008.
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Growth. Oxford University Press; 1974.
Cornia, G.A., R. Jolly and F. Stewart (eds), Adjustment with a Human Face:
Protecting the Vulnerable and Promoting Growth. Oxford, Clarendon Press; 1987.
Cornia, G.A., R. Jolly and F. Stewart (eds), Adjustment with a Human Face: Ten
Country Case Studies. Oxford, Clarendon Press; 1988.
Coulombe, Harold and Andrew McKay, ‘Selective Poverty Reduction in a Slow
Growth Environment: Ghana in the 1990s.’ Paper prepared for World Bank.
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Dzorgbo, Dan-Bright S., Ghana in Search of Development. Uppsala University, 1998.
Frimpong-Ansah, Jonathan H., The Vampire State in Africa: The Political Economy of
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California Press, 1993.
Institute of Statistical, Social and Economic Research (ISSER), The State of the
Ghanaian Economy in 2007. Legon, Ghana: ISSER, 2008.
International Monetary Fund (IMF), ‘Ghana: selected issues’. Washington: IMF, 15
May 2007.
Killick, Tony, Development Economics in Action: A Study of Economic Policies in
Ghana (2nd edn). London: Routledge; 2010.
17
Mazzucato, V., B. van den Boom and N.N.N. Nsowah-Nuamah, ‘Remittances in
Ghana: origin, destination and issues of measurement.’ International
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Rimmer, Douglas, Staying Poor: Ghana’s Political Economy, 1950-1990. Oxford:
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18
Senior Research Associate, Overseas Development Institute, London. This paper draws
extensively on the new material appearing in Killick 2010. To avoid tiresome referencing, this
book will simply be identified in the following in the manner ‘Knnn’.
2 A general health warning is necessary about the reliability of Ghana’s statistics. Many a
researcher has wrestled with the inconsistencies and error margins in many of Ghana’s
statistical series and this condition has not improved over time. This was well illustrated in 2010
when a new official series of national accounts was produced recording GDP to exceed the
previous series by more than 80%. I have throughout tried to be sensitive to the shortcomings
and have screened out the more obviously questionable data. For the most part, I stuck with
series used by international bodies like the IMF and World Bank, which have established
consistent definitions of variables and are well accustomed to wrestling with issues of
unreliability. Fortunately, the recent poverty data, based on successive Ghana Living
Standard Surveys (GLSS), are among the country's best.
1
The evidence for these years is conveniently summarised in World Bank, 2007, III, chapt 1:1.
I am here primarily drawing on the research of the World Bank, 2007 III, chapt. 1, and
Coulombe and McKay, 2003.
5 See World Bank III, chapt 1:14 for alternative inequality measures broadly consistent with the
Gini results.
6 See K:Table 13 for the data. Bear in mind, however, the poor quality of the national
accounts.
7 These matters are discussed in IMF, 2007A, Chapter II.
8 See annual Doing Business reports on the World Bank web site.
9 See www.heritage.org/index/country/Ghana.
10 Along similar lines, Aryeetey and Tarp (2000:346-47) comment that, although the reform
measures were designed on the basis of the then prevailing neo-liberal orthodoxy, it was
quite selective in its application and did not rely on any single unified framework of theory.
11 See World Bank ibid, Table 1.21; see also K:430 using a different source but showing the
same trend.
12 World Bank, ibid, Table 1.19.
13 The real producer price per tonne of cocoa (with 1999/00 as base) in 2005/06 was 74%
higher than the 2000/01 level - see ISSER, 2008, Table 5.11.
3
4
See K:454-56 for further discussion of this.
Cited by Rimmer, 1992:177.
16 Various studies have found that remittance inflows have tended to go disproportionately
to the already relatively well-to-do. See Adams et al, 2008; Mazzucato et al,2008; and
Coulombe and McKay, 2003.
17 In fact, there is an amusing story about the way the newly-elected NPP government hijacked the first GPRS in favour of large-scale, growth-oriented infrastructural projects,
downplaying its anti-poverty content, out-manoeuvring aid donors and leaving them little
choice but to accept this last-minute reorientation.
18 In the paragraph which follows I am drawing on an unpublished ODI evaluation of the
workings of budgetary support in the years up to 2005-06 (ODI, 2007).
14
15