African Finance Minister Of The Year - The Story
AFRICAN FINANCE MINISTER OF THE YEAR: YAW OSAFO-MAAFO, GHANA
By John Rumsey
This July, Ghana passed a milestone. It became only the 14th country to qualify for full debt relief under the Heavily Indebted Poor Countries (HIPC) programme, in a deal that will see creditors write off $3.5 billion of debt in nominal terms. The bottom line is that for this year and for the next nine, Ghana will save about $230 million annually in debt service costs (or over $10 a year per head in a country of 20 million people, where the GDP per capita over the past decade has averaged some $300).
Ghana's achievement in reaching the completion point of the programme is the culmination of a story of macroeconomic improvements under the minister of finance and economic planning, Yaw Osafo-Maafo, who has launched a programme of reform that has attracted increasing attention from international donors. His programme has been instrumental in helping the government slash inflation, push up growth rates and boost spending to cut poverty. This success story is one that's still unfolding, with Ghana increasingly spoken of in the same breath as Africa's golden boy Uganda, with its highly successful development policies.
So, what's the secret? One of the principal strengths of the programme is a level of transparency that is refreshingly high. The difficulties facing the ministry were typical. It lacked a strong process for forming budgets and was weak in ensuring compliance with the limited aims that had been decided on. This was compounded by the difficulties that the ministry faced in gathering information and especially in working with other agencies, such as the Bank of Ghana and the Controller and Accountant General. The ministry published these difficulties on-line, together with its proposed solutions.
This willingness to highlight problems was matched by very practical steps to tackle them. These included such simple-sounding aims as recovery of loans owed to the government and improving the capacity to track poverty-reducing expenditures. Another big initiative was the decision to combat fraud within the public sector. Many staff on payroll simply did not exist: the ministry helped coordinate efforts between diverse government agencies to delist these ?ghost names' from the public payroll.
This emphasis on transparency has gained Ghana the trust of the international donor community. Efforts to spend aid more effectively by selecting recipient countries that have implemented progressive policies have boosted Ghana, and the completion of the HIPC programme is ensuring the country stays in the limelight.
Last year, it became the first country to gain a rating from Standard & Poor's (B+ for long-term foreign currency at the sovereign level) through a new United Nations Development Programme (UNDP) to help sub-Saharan African and other developing countries to obtain sovereign credit ratings.
More importantly, the Millennium Challenge Corporation has recognized Ghana's macroeconomic stability. This US-sponsored body is designed to target aid at countries that ?rule justly, invest in their people, and encourage economic freedom?. Paul Applegarth, chief executive of the Millennium Challenge Corporation, recently visited Ghana and praised the government's ?significant progress toward achieving ... medium-term fiscal objectives, owing in part to improved expenditure discipline.
Fiscal consolidation avoided the need for net domestic financing of the budget last year, and this led to a decline of the domestic debt-to-GDP ratio, contributing to a sharp fall in interest rates.? That's not to say that all has been smooth sailing for the ministry. Important parts of its reform programme have lagged behind, including the plan to streamline the agencies and prepare a more structured approach to budget formulation. These will need to be tackled soon as momentum could be lost and priorities changed ahead of presidential and parliamentary elections that will be held on December 7.