15.03.2003 Feature Article

A Critique of Ghana's Poverty Reduction Strategy

A Critique of Ghana's Poverty Reduction Strategy
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In terms of breadth, depth, and analytical clarity, the Ghana Poverty Reduction Strategy Paper (GPRSP) represents a considerable improvement over its immediate twin predecessors, Ghana Vision 2020: The First Step, and the Interim Poverty Reduction Strategy Paper (I-PRSP).

Lacking adequate resources and political will, Vision 2020 had been reduced to a motley collection of policy analyses which, taken together, lacked both internal consistency and implementational focus. Though nominally a five-year plan spanning 1996-2000, the Vision 2020 policy document was not released until mid-1997; its "action plan" was released a year later, just as the national economy was slipping into a crippling three-year recession.

The I-PRSP, which, at the urging of the IMF, was developed in June 2000 as a last-ditch effort to rescue the foundering Vision 2020, was supposed to cover 2000-2002. It was only 40 pages long and, given its superficiality, seemed more designed to meet specific IMF conditionalities in exchange for aid than an earnest attempt at national development as such.

With the change in government in 2001 and fresh inflows of foreign assistance, the I-PRSP was transformed into the GPRSP, with Volume I covering some 183 pages of policy analyses and prescriptions. (Volume II, covering costs and implementation, is yet to be made publicly available).

The GPRSP's overall analysis of the causes of Ghana's economic and social stagnation is thorough and relatively impressive. Its treatment of "anticipatory borrowing" by government, for example, highlights a serious but often ignored problem in the pursuit of fiscal rectitude in Ghana.

In 2000, for instance, the government borrowed C1.7 trillion cedis from the Bank of Ghana in anticipation of C1.8 trillion cedis in foreign aid that never materialized. Such irresponsible fiscal practices lie at the heart of the country's current debt morass.

The GPRSP's proposal for "uninterrupted" basic education up to ages 17 and 18, though criticized in some quarters, is in fact prudent and forward looking. In the short-term, it should help restrain labour force growth by keeping off the streets hordes of semi-educated child-graduates from junior secondary schools. In the long term, it should provide a more mature and, hopefully, better trained entrants into the labour force.

But as thorough and innovative as the GPRSP is, it also suffers from certain major omissions and weaknesses that have the potential to compromise it integrity.

The sections on human and social development, for instance, concentrate only on education, health, and sanitation services, to the complete exclusion of housing services, a critical ingredient for any sound national development strategy. In fact, except for scattered and passing references to the need for "improved" or "decent" housing, the GPRSP offers no national policy on the current and future housing needs of a growing and increasingly mobile population.

Given that housing ownership is a major indicator of national and personal wealth, and since the GPRSP offers "wealth creation" as the dominant way out of poverty, it is inexcusable that it should proffer no national policy on housing development.

According to the Fourth Ghana Living Standards Survey (GLSS4), an estimated 52.5% of Ghanaian families live mud houses; in the rural Savannah, where poverty is the most severe, the figure is as high as 83.1%. The same survey shows that only 6.0% of households have flush toilets; 20.5% have no toilet facilities at all; and the rest make do with pan latrines and KVIP.

Besides its role in wealth creation, housing conditions also affect and reflect the levels of poverty in a country. Indeed, in some countries, the quality of housing is factored into calculations of poverty rates. The government should take note.

The GPRSP also discusses the inherent dangers of over-dependence on foreign aid and, predictably, recommends an intensification of domestic revenue mobilization. But, as with past such recommendations, the document dwells exclusively on the back-end (collections) of tax administration and completely ignores the front-end (payments).

There is ample evidence to show that cumbersome and archaic tax-payment procedures are as responsible for low tax yields as are weak collection efforts. Tax information, for example, is typically difficult and often impossible to obtain from the tax authorities. Yet, such information can be made readily available at places such as banks, petrol stations, the Registrar General's Office, and even the offices of the various business associations in Ghana.

With the advent of electronic banking, taxpayers should be able to open "tax accounts" to facilitate hassle-free settlement of their tax obligations. Even a simple toll-free tax-evasion hotline, with the appropriate nomenclature and procedures, can significantly shift part of the burden of tax reforms from over-worked tax officials to the public.

The macroeconomic basis of the GPRSP's projected reductions in poverty from 39.5% in 2000 to 32.0% in 2004 - a decline of about 20% - also raises more questions than it answers. The average annual growth of the Gross Domestic Product (GDP) between 2001 and 2004 is estimated at 4.55%, only 0.3 percentage points higher than the 4.25% rate recorded from 1997 to 2000.

Unless there is a massive and unprecedented redistribution of income from the rich to the poor between 2001 and 2004, it is highly unlikely that such a negligible improvement in economic growth can lead to such a steep drop in poverty. (Significantly, the GPRSP does not discuss the Gross National Product (GNP), a better measure of national income).

There is also the vexing issue of just what constitutes poverty and how best to measure it. Income poverty is considered relatively easy to measure but less desirable because it is said to underestimate human welfare by excluding self-produced goods and services (such as farm produce).

Consumption poverty, which the GPRSP uses, is usually preferred because it accounts for household expenditures and thus human welfare, irrespective of income levels. It is harder to measure, however.

But even after one or the other measure is chosen, the process of determining what percentage of the population lives in poverty remains unsettled.

For example, contrary to popular belief, the 39.5% poverty rate used in the GPRSP was not calculated from some iron-clad scientific formula. Rather, it was derived by government and World Bank bureaucrats from "a consensus of data users" in Ghana. That means the poverty rate at any point in time depends as much on economic growth as on the perceptions of data users!

There must be a better way to gauge the success of the GPRSP than this.

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