Long Run Growth in Ghana
Santiago Herrera The World Bank
The future is African… from the demographer’s perspective Pop forecast (log)
Dependency ratio
6,000,000 4,000,000
Asia AFR
2,000,000 1,600,000 1,200,000 1,000,000 800,000
Latin America
EUR
600,000 400,000 North America
200,000 2010
2020
2030
2040 AFR LAC
2050
2060 ASIA NAM
2070 EUR
2080
2090
2100
Growth rates of urban agglomerations, 20112025 (UN).
Main messages: • Positive medium term prospects for GDP growth, but significant short term risks. • Two main risks of growth strategy: growth trap and reaching the limits of capital accumulation. • Role of public policy is to mitigate risk by supporting productivity growth (public investment management, SOE governance reform, budget execution and monitoring). • A level playing field (equal opportunities for all) is a necessary condition for sustained growth.
5
Agenda I. Growth trend, determinants, and prospects. II. Risks and challenges for sustained growth. III. Policies for supporting productivity growth.
I. Growth trend: from stagnation to growth. 16 % 14
Growth
12 10 8 6 4 2 90
92
94
96
98
00
02
04
06
08
10
12
14
Ghana’s growth has been intimately linked to its natural resources, and will continue to be that way. 2.5 2.0 1.5 1.0 growth 0.5
Cocoa
0.0 -0.5 -1.0 -1.5
Gold
Empirical evidence and growth prospects 120 countries 1970-2009
Results: Education (+) Oil Rents (+, ?) Investment (+) Inflation, Government Consumption (-) Openness (+)
Ghana’s oil production is projected to peak around 2020, and so is government revenue. 350
Oil Revenue (million $)
4000
Oil Production (MBl/d)
3500
300
3000
250
2500 200 2000 150 1500
100 1000 50
0 2011
500 0 2017
2023 Jubilee
TEN
Sankofa
2029 Upside
2035
2011
2015
Royalties
2019
2023
Participating Interest
2027
Income Tax
2031
AOE
2035
Ghana’s medium term growth prospect: 3-5 % per capita over the next decade. Ghana’s medium term growth prospect is strong with the oil sector’s rising contribution
0.06
0.04
0.02
0
-0.02
-0.04
-0.06 1970
1980
1990
2000
2010
GDP per capita growth
Fitted GDP per capita growth
Scenario1
Scenario 2
Scenario 3
2020
2030
II. Risks and challenges to sustained growth: Fast growing countries may suddenly stop growing • Macroeconomic instability • Progress in institutional reform
Ghana is undergoing an ambitious fiscal adjustment …. 35 Revenue (% of GDP) 30
Expenditure (% of GDP)
25
20
Target Fiscal Deficit: 3.7% by 2017
15
10 2010
2011
2012
2013
2014
2015
2016
2017
Ghana is undergoing an ambitious fiscal adjustment (2)…. 4
Overall Fiscal Balance (% of GDP)
2
Primary Fiscal Balance (% of GDP)
0
Primary balance is already zero in 2015
-2 -4 -6 -8 -10 -12 -14
2010
2011
2012
2013
2014
2015
2016
2017
Type of adjustment increases likelihood of sustainability. % of GDP %GDP
Ghana’s public debt level is high, but stabilizing. %GDP
And the current account imbalance is falling.
Currency depreciation is not Ghanaspecific. USD strengthening is global.
Growth has been based on capital accumulation and depletion of natural resources.
Human Capital
19922000 0.3
20002008 0.4
20082012 1.4
Physical Capital
2.0
2.2
2.9
Total Factor Productivity
-0.8
0.8
1.9
GDP per capita Growth
1.5
3.4
6.0
Period Average
Productivity growth is associated with better institutions such as rule of law…
…and better government effectiveness.
Progress in enhancing institutional quality has been slow.
Oil is no guarantee of success: many oil producers are worse-off now than in 1970.
23
III. Institutional reform to support productivity growth: a) Effectiveness of public spending
Teacher absenteeism explains part of the problem.
Absenteeism affects the poor disproportionately.
Source: MOE
b) Governance reform of SOEs is needed to reach acceptable levels of public service provision. Ratio of Electricity Losses to Consumption World Af rica Italy Japan Korea Turkey Botswana Ghana Senegal Keny a South Af rica Tanzania Bangladesh India Pakistan China Indonesia Malay sia Philippines Thailand Vietnam Argentina Brazil Chile Colombia Ecuador Mexico Venezuela
.00
.04
.08
.12
.16
.20
.24
.28
.32
.36
c) A functional public investment management system (PIMS) is required for public spending being supportive of growth.
8. Ex-post evaluation
1. Strategy , project development & preliminary screening
7. Facility operation
2.Project appraisal
3. Independent review
4. Project selection and budget integration
6. Project adjustment 5. Project Implementation
d) Inequality of opportunities clashes with social cohesion Numerical literacy, by wealth quintile
Access to unshared improved sanitation, by location of residence
60 Rural 50 40 Urban
30 20
Total
10 0 1
2
3
4
5
0
5
10
15
20
25
Healthy and sustained growth requires making the right choices. Does Ghana have the audacity to make them?
