The World Bank & IMF in Ghana

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The World Bank & IMF in Ghana
 

Ghana Before the World Bank & IMF 

Ghana was the first colony in Africa to gain independence on March 6th, 1957. It was now under the leadership of Dr Kwame Nkrumah who was democratically elected. On independence the economy appeared stable and prosperous. Ghana was the world leading producer of cocoa (Berry, 1994). President Nkrumah sought to use this stability as a jumpstart for economic diversification and expansion. Like many African countries post-independence Ghana was guided by the declaration of the first Development Decade (1960-70) by the UN (Aryeetey, et al., 2000). Many African leaders believed they could achieve in a few decades what Europe had taken centuries to achieve. Rapid industrialization, with the capital coming from the state or private investors, was thought to be the key for development (Aryeetey, et al., 2000). President Nkrumah aimed at growth rate in the range of 4% – 7% per year, at a time when Ghana’s actual growth was bellow than 4%. This desire for growth explains why in Ghana’s 7-Year Development Plan (1963/64 – 1969/70), as much as 20% of the total investment budget was directed to the development of industry and trade (Berry, 1994). By the beginning of the 1970s, the development strategies the were devised by the state have been noticed to have failed. The results from the first development efforts highlighted a number of problems and concerns. It became apparent that even though the government aimed at rising living standards for their entire population, the patterns of development that emerged tended to concentrate development in a few economic sectors as well as in a few cities. Thus, the country had its share of discontinuous development, with wide and growing disparities in income and access to basic social and economic services (Aryeetey, et al., 2000).

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 Since the earlier growth efforts did not meet expected results, the next step in the 1970s was to attack the growing problem of poverty more directly. According to (Streeten & Hicks, 1979) this approach was developed for three main reasons, mainly because the assumed justification for the previous method turned out to be wrong or not universally true. These justifications were (Streeten & Hicks, 1979):

  1. That economic growth would trickle down automatically through rising demand for labor, greater productivity, higher wages, lower prices, etc.
  2. That governments were democratic and concerned about the fate of the poor and would use progressive taxation and social services to spread benefits downwards.
  3. That accumulation of capital, infrastructure and productive capacity was essential to improve the lot of the poor later on.

It then became necessary to adopt an approach which called for direct redistribution.

The Arrival of the World Bank & IMF

 In the early 1980s the government of Ghana approached the IMF and the World Bank to help them with the failure of previous development plans. With this, in 1983 Ghana participated in the IMF and World Bank sponsored Structural Adjustment Programs (SAPs) (World Bank, 1994). They claimed that the implementation of SAPs almost invariably leads to poverty reduction and bridges the gap between the rich and the poor and between the rural and urban areas (World Bank, 1994). Three main argument are presented to support this claim (World Bank, 1994):

  1. Failure to adjust will, ultimately impose huge cost on the poor, with unsustainable budget and trade deficits leading to hyperinflation, currency instability, and economic collapse.
  2. State intervention in the rural sector, where a vast majority of the poor live, lowered prices, reduced market opportunities and depressed household income. Rural market deregulation, however, rises prices and creates rural employment. In the urban sector, import liberalization makes local industries more competitive by allowing them to take advantage of imported technology. Therefore, liberalization with market deregulation will lead to the creation of jobs.
  3. SAPs incorporate “social conditionality” and provisions that aim at protecting welfare service delivery in areas that are poor.

With this it is seen that the World Bank and IMF claim that their central goal is poverty reduction. The question now is: To what extent do their programs lead to poverty reduction?

The World Bank & IMF’s Solution

 Typically, the IMF & World Bank SAPs include actions that must be taken such as currency devaluation, downsizing the public service, reducing inflation, cutbacks on government spending on education, health and welfare, and privatization of public enterprises (Konadu-Agyemang, 2000). Both the IMF & World Bank and other supporters of SAPs, claim that the economic problems of developing countries have nothing to do with external factors as is asserted by neo-Marxist theorist (Streeten & Hicks, 1979), but they are rooted in endogenous factors that are considered to be hinderances to development and are needed to be removed for any king of development to occur (Streeten & Hicks, 1979). These obstacles include (Wold Bank, 1981):

  • Unwarranted state interference in the workings of the price mechanism
  • Over-bloated public service
  • Exchange control
  • State ownership of manufacturing enterprises
  • Investment in social welfare

These factors are said to lower the efficiency of the market. In April of 1983, Ghana’s economic recovery program (ERP) was put into action (Konadu-Agyemang, 2000). The implementation of the ERP consisted of compressing government expenditure through cuts in social services, devaluation of Ghana’s currency, abolishing domestic price control, and strengthening of the tax administration (Konadu-Agyemang, 2000). They are also encouraging the production and export of both traditional exports (cocoa, mineral resources, timber) and non-traditional exports (crafts, foodstuff, vegetables) (World Bank, 1995).

Structural Adjustment Programs (SAPs) in Ghana

 The World Bank & IMF claim that the implementation of SAPs rescued Ghana’s economy from complete collapse. It is true that Ghana’s GDP went from a negative growth to a GDP growth of about 5%-6% since the implementation of SAPs (Konadu-Agyemang, 2000). In addition, Ghana’s inflation dropped from 123% in the early 1980s to 32% in 1991 (Konadu-Agyemang, 2000). Again, it has been argued that if the SAPs were not implemented, Ghana’s industrial production would have died out. But thanks to the SAPs, most industries are now operating at 35%-40% capacity. Other achievements of SAPs include repairs in structural imbalances, growth in goods and services, and the attraction of foreign investments (World Bank, 1995).

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 While all the achievements that are mentioned above were recorded at the macro level, the SAPs benefits at the micro level are a matter of considerable debate. The implementation of SAPs not only cause the laying-off of over 300,000 public sector workers, but they also led to major cuts in state spending on public services and social welfare and introduces fees for health and education (Konadu-Agyemang, 2000). In turn, the poor’s access to education and health services has been reduced. In addition, the devaluation of Ghana’s currency (cedi) from 2.75 = $1 to 2,300 = $1 has caused a rise in the costs of importing machinery, drugs, school supplies, and other essential items (Aryeetey, et al., 2000). Their total debt also rose from $1,398 million in 1980 to $5,874 million in 1995 (World Bank, 1995). Debt servicing is now about 62% of export earnings, diverting the resources from the local needs (Konadu-Agyemang, 2000). That being said, the national income has been slightly redistributed in favor of the poor from 7% to 7.9% (World Bank, 1995). Nevertheless, poverty is still a major problem in Ghana. The three Global Antimicrobial Resistance Surveillance System (GLASS) reports (GLASS 1988, 1989, 1992) all indicate that despite improvements in poverty, 31% of all Ghanaians fall below the poverty line that was fixed at a household income of 132,230 cedis per year ($25,000/yr.) (Konadu-Agyemang, 2000). More than half of the poor were classified as “ultra-poor” because they had incomes below the ultra-poverty line of 99,173 cedis/year ($18,800/yr.). It was also mentioned that the rural areas contain 80% of the poor despite having 64% of the population. Socioeconomic and spatial disparities also worsened between the urban and rural areas (Aryeetey, et al., 2000). These negatives are all opposite to the World Banks’s claim that SAPs in Ghana have causes the redistribution of resources from urban to rural areas.

Unequal Development in Ghana

 The results of the three GLASS reports (GLASS 1987, 1987, 1992) have demonstrated that unequal development did occur under the implementation of the SAPs. The inequality in the distribution of social services and wealth between the coastal and forest town on one hand and on the other the savanna settlements, it not a new concept. Since the colonial times, the colonizers made the effort to create social and economic infrastructure in the form of schools, hospital, harbors, railways and roads. All of which were focused on the coastal and forest areas, because their main focus was the exportation of resource. The resource-poor savanna belt was excluded from any kind of development due to its lack of importance to the colonizers.

 After independence president Nkrumah did attempt to lessen these disparities by providing free education, health care, and creating roads. This did seem to work as seen by the rise of literacy rates. After Ghana’s economic collapse of the 1970s Nkrumah’s vision of equality between the regions was practically lost. The arrival of the SAPs did not help the situation. Due to their reduction on reduction on spending in education, healthcare and social welfare, primary education was still free, however, parents had to contribute for book, furniture and other school supplies. This caused children from the deprived regions in Ghana to cannot afford to go to school.

 One of the main objectives of the SAPs is to reduce state expenditure on social services to a minimum (Konadu-Agyemang, 2000). During phase one of the SAPs (1983-1986) up to 62% of the government funds were put into physical infrastructure, 32% was put for “productive activities” and less than 5% was put into social services (Konadu-Agyemang, 2000). Government spending on the heal sector in 1996 was only 1.16% of the national budget (Aryeetey, et al., 2000). This is way off to the 1980 value of 10% (Aryeetey, et al., 2000). Education suffered an even worst fate under SAPs, with government spending decreasing from 4.3% of the national budget to less than 1% in 1996 (Aryeetey, et al., 2000). The government of Ghana expected the money coming from foreign donors to supplement it for the decrease in spending on social services (Konadu-Agyemang, 2000). This corelates exactly with was the Structural Adjustment Programs (SAPs) were design for. They treated the health, education and other social services as less desirable goals. Expectedly, health, maternal and child mortality and education suffered greatly since the implementation of the SAPs from the World Bank & IMF. In addition, malnutrition has seen an increase since the SAPs started (Aryeetey, et al., 2000).

 A 1986 nationwide study found that about 58% of children were 80% below their ideal weight, compared to less than 30% in 1962 (Konadu-Agyemang, 2000). Infant mortality fell from 120 per 1,000 births in 1965 to 86 in 1982, and it stayed constant thereafter (Konadu-Agyemang, 2000). What the numbers don’t tell is that these incidences of malnutrition and child mortality are more severe in the rural areas. The Ghana Demographic and Health Survey (GDHS) made a strong correlation between child malnutrition and mortality to the mother’s education. Where about 10% of children whose mothers are educated with secondary or high school level education are affected (Aryeetey, et al., 2000). The children’s malnutrition number is more noticeable with mothers who are less educated with an average of 33% of children are affected (Aryeetey, et al., 2000).

 In all cases urban residents seem to have better opportunities compared to the rural residents. For example, when only 28% of rural resident had the ability to give birth at health facilities, 79% of urban resident had that luxury (Aryeetey, et al., 2000). The disparities are also shown in that the ratio of government employed physicians in the urban areas is about 1:5,300 people that ratio is 1:64,000 people in the rural areas (Aryeetey, et al., 2000). From this it is seen that a strong relation ship exists between infant and maternal mortality and access to proper health care. While access to proper health care facilities is a major factor, the ability to afford the health care is another aspect that needs to be considered. It is seen that in Ghana people in the urban areas are generally more educated and therefore more likely paid better. Health care used to be free for all civilians until SAPs introduced hospital fees in 1985 (Konadu-Agyemang, 2000). These fees caused a 25%-50% drop in hospital visits in the urban area that number was 45%-80% in the rural areas (Konadu-Agyemang, 2000).

 Education is another aspect that seems to be widely unequal between regions. In 1993 85% of all 6-14-year-old children were enrolled in schools in the urban area (Konadu-Agyemang, 2000). Whereas 71% of the same age group in the rural area were enrolled in school. It is worth mentioning that the overall number of enrolments have seen improvements since 1980. However, that number seems to reflect more so in the urban areas than the rural. The number of untrained teachers is also considered to be considerably high. Where 39.7% of all teachers were untrained (Konadu-Agyemang, 2000).

SAPs and Spatial Inequalities

 The structure adjustment programs (SAPs) were designed to increase the number of exportable good and reduce the role of the state in the economy. The IMF and World Bank claimed that African countries are held back by over subsidized state enterprises and overspending on social services. That is why they tried to reduce government expenditure through privatization and the employment of “pay as you use” mentality. What was not considered is that government involvement in the social services such as health and education, represents the only way of ensuring the poor has access to these services. Total government withdrawal seems to increase the disparities between regions access to essential services such as hospitals and schools. This is evident in Ghana in that since the government cut back on social spending hospitals and schools in the rural areas have been left understaffed and somewhat unaffordable to the locals.

 SAPs did try to raise rural incomes and reduce urban bias, however their approach seemed to have no effect. What the IMF and World Bank thought was that by currency devaluation and price liberalization, the urban/rural trade terms would improve in favor of the rural areas (Konadu-Agyemang, 2000). In turn, this would increase rural income and reduce poverty. However, from the evidence shown above that did not happen. What happen was that the SAPs did increase income in rural area but only for cocoa producers, and only 19% of rural resident work in cocoa production (Konadu-Agyemang, 2000). SAPs were involved in large-scale changes in the redistribution of resources, which left some people better off and others worst off. It seems that the people living in the rural areas got the bad side of the deal. This phenomenon has not only appeared in Ghana but also can be seen in Zambia, Madagascar and other that have had business with the IMF and World Bank (Konadu-Agyemang, 2000).

Conclusion

 It is no secret that the SAPs that were implemented by the World Bank and IMF have not been very effective in Ghana or most African countries that have adopted them. It would be fair to say that the distribution of the accomplishments of the SAPs were uneven. The people that started off poor remained poor due to their inability to compete in the market. While the economy may be doing its best numbers since the 1970s, the benefits have not reached the entire population. The poor’s access to proper health care and education has been severely hindered by the implementation of SAPs. As it turns out that the Marxist theory that market-oriented development will almost always result in spatial disparities, appeared to be true. In order to lessen the spatial disparities, the SAPs need to be reconsidered entirely.

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