Introduction
The economic rationale for aid is to boost rate of growth in the developing nations. Ghana is a developing country that has relied on economic aid from independence. Aid from the international financial institutions are mainly invested which is fundamental aspect in enhancing growth. Ghana has been a regular recipient of these funds since domestic funds are not enough to meet investments desires and also the challenge in balance of payments where imports are more expensive than exports. As such, country needs to borrow funds to cover the deficit.
Foreign aid has been used to finance various public services that the government cannot fully fund. Sectors such as education, health and defense have utilized foreign aid to a great extent. The governments of Ghana have continuously use donations and financial aid from the World Bank and the International Monetary Fund to finance its budget deficits.
Structural adjustment program
In the 1970s, there was a lot of mismanagement of the Ghanaian economy. This led to a 100% overvalued exchange rate (Taylor 2000). This led to failure of cocoa markets which were the main source of foreign exchange in Ghana. This led to massive shutdown of industries that relied on the crop as an input. This turbulent period made the governments to collapse due to lack of funds; this explains why there were so many regime changes at the time. The resultant regimes opted to contain the crisis by uncovering all corruption scandals that had devastated the country. This was done in an attempt to restore economic sanity of Ghana. According to Jeffrey (2000), the traders who were hoarding goods in the quest for higher profits were punished by confiscating their goods and selling them at low prices.
These policies coincided with a severe famine that hit the country in 1983. This made the county to opt for foreign funding. The first foreign nation to be approached by Ghana was the Soviet Union where it referred them to the IMF and the World Bank. The government introduced a stimulus program that was known as the Economic Recovery Program that included measures of austerity and devaluation alongside tight money.
The adjustments allowed the government to refrain from interfering in the market. As such, the market forces were allowed to negotiate various aspects like the exchange rates. The role of the government was minimized to that of only controlling macroeconomic variables. This proved to be a very effective measure since it attracted huge capital inflow from many lenders (Malik 1995).The capital inflow led to balance of payments. The market forces were able to bring about a better exchange rate that aided in better prices for the exports of cocoa thus increasing receipts. This directly increased the GDP of Ghana by 5% every year.
Ghana experienced inflation problems after inception of these measures. In the period 1986-1989, the inflation rate was excessive high averaging to 30%. The political government of Ghana made a lot of commitments to end the crisis in the year 1992-1994 that raised further the inflation rates in the country. External funding was therefore needed.
Schemes by the World Bank and the IMF
The IMF has devised a scheme that is aimed at providing loans and other financial services to the low income people. The project known as Poverty Reduction and Growth Facility is aimed at providing capital to poverty stricken citizens to start small businesses. These loans are affordable since they have a very low interest rate attached (0.5%). However, the scheme has been criticized for excessive conditions that must be fulfilled before a person is liable to receive a loan. This has left many out of the program.
The World Bank has helped in structural adjustments of Ghana health sector. The IMF has provided funds for the establishment of NHIS. This is a pilot project that is supposed to give people affordable healthcare (Mensah 2009). Quality services also increases the outcomes and thereby enhance economic growth. This is because a healthy population more productive. The word bank and the IMF have also financed the environment conservation projects in Ghana. A study conducted by the government of Ghana suggests that mining industry will require tight control. Logging, improved transparency in the mining sectors is vital for development. The mining sector, including offshore oil exploration can attract an income of US$1 billion every year for 20 years.
Another project the World Bank has financed in Ghana is the Ghana urban water project. The project was initiated in 2004 and has been extended to 2015 to improve the availability of water to all citizens. Poor Water and sanitation systems cost the country a lot of funds due to constant disease outbreaks. Combating malaria has been a major concern for many international financial institutions and foreign governments. The World Bank has joined hands with USAID and the IMF to fund Malaria Control and Child Survival Project. The information centre in the government of Ghana website shows that the bank has injected more than US$ 25 million in this project from its inception. In addition, The World Bank has also developed the Ghana Social Opportunities Project aimed at improving social spending and increase employment opportunities. A total of US$30.6 has already been disbursed by the World Bank. < www.ghana.gov.gh>
Ghana made a bad decision in the 1960s. It decided to change its economy to a low income economy. Mismanagement, macroeconomic mismanagement and the rampant corruption were all the roots of its poor economic performance. In the 1970s, things worsen. Its GDP at market price fell by about 11% while the income per capita fell by a figure which was greater than this. This scenario of economic deterioration did not change till 1985(Toye 1991).
In 1983, under the sponsorships of the World Bank‘s adjustment program, the country reversed the economic declines that it had undergone in the 1970s and early 1980s. World Bank’s program really helped in changing the adverse economic situation the Ghana was undergoing and by the1985 the country’s had gained stability in macroeconomic. In the period between 1983 and 1987, the country s per capita income rose by 12% (Mosley 1991). This saw Ghana’s economy grow and before 1990 the country’s economy was one of the best performing economies in the sub-Sahara part of Africa. However, the prices of its exports such as cocoa and gold were still dropping in the world market. The structural reforms that took place in the country later enabled it to buoyantly respond to the external shocks that it received.
One major aspect that facilitated Ghana’s economic improvement was the policy reforms in the agricultural sector. The reforms enabled the production of cocoa to double despite the fact that their prices at the world market were poor. Aid playe4d an important role not only by injecting funds into Ghana’s economy but also by encouraging the country to change its policies (Leechor 1994).
Prior to 1983, the country’s exports were continuously declining. Upon the intervention of World Bank, the exports stated rising. The falling in exports prior to 1983 was due to the discrimination of cocoa which was the major export. Overvaluation of the currency, price and market controls was both inefficient since changes in prices of cocoa were not passed to the farmers. It therefore largely affected the government which had to bear all risks. This scenario changed in 1983 when the foreign exchange was liberalized. The policy reforms had an indirect effect on the level of private consumption. The proportion of Private consumption to GDP fell to 76% in 1995 from 87% in 1983 (Leite 2000). This was regular with private savings. Aid was the main source of funds for Ghana’s public investment. Prior to 1983, government investment was volatile but after 1983, World Bank and other international aids helped the country public investment figures to rise.
According to the human development index published by UNDP, Ghana’s HDI seems to be rising at an annual rate of 0.9% from 0.391 prior to 1983 (Heintz 2004). This is a clear indication that the country is not only improving in economic aspects but also social aspects such as education, health and reduction in gender inequalities. This can largely be attributed to the aid that the country receives from its donors. Donor funds have enabled the country to better its social, economic and political structures.
Ghana’s CPI (Corruption Perceptions Index) shows that the level of corruption levels in the country have been reducing by 30% every year since 1985 and the country is currently among the less corrupt countries in Africa . This is a clear indication that the country’s economy is progressing. The index indicates that misuse of power and resources is continuously decreasing in Ghana. The country is still working towards eliminating corruption.
In the 1980s Ghana had a large public debt. With the aid of the World Bank, the country has continuously reduced the debt and by 1990s the debt had reduced significantly. This meant that the country will not lose most of its GDP to the public debt. It also means that the country has enough funds to finance its activities and it therefore did not need to borrow lots of money as it used to do in the 1970s.
The world bank projected that Ghana would be the fastest growing economy in the sub Saharan Africa recording a growth rate of up to 13.4% in the year 2011. Due to its oil wealth, the country could still register high economic growth than this. The World Bank warned that Ghana should not allow the foreign investors to have a full control of the oil industry since that would have led to distortion of the incentives which are used for economic development. Ghana’s economic growth especially in the private sector attracted foreign investors especially in the private sector. The WFP also contributed to Ghana’s growth by providing food aid to the sub-Saharan country during times of food crises. This helped the country s population to obtain something to eat and remain energetic so that they could work towards improving their economy. The World Bank further projected that by 2012 that the country’s GDP will have risen to 3.6% (Mosley 1991).
It is evident that foreign aid led to Ghana’s economic growth. However some international policies had previously hindered its growth and starts growing once the World Bank intervened. If the country wishes to maintain its pace of growth, it should be very keen when receiving the external aids since such aids can lead to foreigners controlling the economy. The donors will be pursuing their interests and not those of the Ghanaians. The citizens of this country will therefore suffer from economic deterioration while the donors benefit.
References
Mensah , J., Oppong, J., & Schmidt, C. (2009). Ghana’s National Health Insurance Scheme in the Context of the Health MDGs.
Killick, Taylor. (2000), ‘Fragile still? The Structure of Ghana’s Economy, 1960-1994’, in E.Aryeetey, J. Harrigan and M. Nissanke (eds), Economic Reforms in Ghana: TheReality and Mirage, London: James Currey, pp. 51-67.
Jeffrey, R. and O. Morrissey (2000), ‘Aid Instability as a Measure of Uncertainty and the Positive Impact of Aid on Growth’, Journal of Development Studies, 36:3, 31-49
Four Major World Bank Assisted Projects in Ghana Revised. (n.d.). Retrieved from http://www.ghana.gov.gh/index.php/news/general-news/19196-four-major-world-bank-assisted-projects-in-ghana-revised-
Mosley, P., Harrigan, J., &Toye, J. (1991). Aid and power: The World Bank and policy-based lending. (Aid and power.) London [etc.: Routledge.
Leechor, C. (1994). Ghana: Frontrunner in adjustment. (Adjustment in Africa: lessons from country case studies (1994).
Leite, S. P. (2000). Ghana: Economic development in a democratic environment. Washington, DC: International Monetary Fund.
Heintz, J., International Labor Office, & United Nations Development Programme (2004). Elements of an employment framework for poverty reduction in Ghana: Report of a joint ILO/UNDP mission. Geneva: ILO/UNDP.
