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Ghana eligible for $1 billion MCA

Published: 05-JUL-04

On 6 May 2004, the Board of Directors of the Millennium Challenge Corporation (MMC), chaired by its CEO, Paul Applegarth, announced it had selected 16 countries, out of a list of 63, as eligible to receive assistance from the MCA. But it was not until a week later that top government officials announced the news to the Ghanaian public.

Other African countries are also on the list: Benin, Cape Verde, Lesotho, Mali, Madagascar, Mozambique and Senegal. Also in the first group of eligible countries are Georgia, Honduras, Nicaragua and Sri Lanka, Mongolia, Bolivia, Armenia, and Vanuatu.

Countries in the first tranche will be eligible for funding if they successfully prepare a results-oriented programme to promote economic growth.

Selection criteria

But how was Ghana selected? Country selection for MCA was based on a strict and transparent process, which employed multiple economic and social indicators. The three broad policy categories were ruling justly, investing in people, and establishing economic freedom.

The indicators for ruling justly were:

� Civil liberties

� Political rights

� Voice and accountability

� Government effectiveness

� Rule of law

� Control of corruption.

Investing in people covered:

� Public primary education spending as a percentage of GDP

� Primary education completion rate

� Immunisation rate: DPT and measles

� Public expenditure on health as a percentage of GDP.

Indicators in encouraging economic freedom were:

� Country credit rating

� Inflation

� Fiscal policy

� Days to start a business

� Trade policy

� Regulatory quality rating.

The overriding yardstick for each eligible country was that they meet the following criteria:

�Candidates must score above the median score to get credit on any indicator

�Candidates must perform above the median in relation to its peers on at least half of the indicators in each of the three policy categories

�Candidates must perform above the median on corruption

�Candidates must pass an absolute test of having an inflation rate of under 20 percent.

Ghana breaks records

Ghana passed all the indicators in ruling justly, against the minimum requirement of passing in three. In investing in people, it passed all four of the indicators, two more than are necessary to qualify for the MCA.

Of particular interest is Ghana's achievement of above the median of spending on primary education as a percent of GDP. The median is 1.88 percent, but Ghana's figure was about 3.36 percent.

The primary education completion rate, another important area, saw Ghana again scoring above the median, with a score of 63.6 percent. In the Immunisation rate requirement, which is the ratio of children under one year of age who received immunisations for DPT, Ghana's average rate was 80.5 percent, above the median of 74.5 percent. The country spends 2.56 percent of GDP on public health, above the median of 1.78 percent.

In the third category of establishing economic freedom, Ghana passed three of the six indicators, the minimum number required. In this category, a country with less than 20 percent will receive a passing score. Ghana's inflation rate at the time was 13.5 percent, clearly below the 20.0 percent required by the MCC.

In the area of regulatory quality, which is designed to measure the extent of the burden posed by regulations - including wage and price controls, inadequate bank supervision, excessive controls on trade, investment, and business start-up, excessive restrictions on international capital flows, and ponderous legal restrictions on ownership and equity positions by non-residents - Ghana again scored above the median.

On country credit rating, which provides an assessment of perceived risk of government default, Ghana scored above the median of 20.1 percent, with a score of 27.9 percent.

On trade policy, fiscal deficit and days required to start a business, Ghana scored below the median. These indicators are continuously improving, however. For example, days to start a business has dropped from 126 to 85, as a result of ongoing reforms to improve the barriers to domestic and foreign investments. (The MCA median was 61 days).

Government has also shown commitment to reducing the budget deficit. In 2003, this amounted to 3.4 percent of GDP (the median for MCA, which was calculated using the average budget deficit for the last three years was 3.4 percent).

Shot in the arm for Ghana

Ghana's image has received a tremendous boost by its inclusion in the first tranche of countries selected for the MCA.

President John Agyekum Kufuor assured the nation during a recent State of the Nation address that government is committed to poverty reduction, and growth and prosperity through wealth creation. The indication is that good governance is finally yielding economic benefits. Achieving eligibility is seen as a sign of a new vision for the young democracy, prudent economic management and people's empowerment.

Nonetheless, the holistic approach to development - in the areas of good governance, and equity in the distribution of social amenities - improved water supply, energy, and infrastructure and job creation justifies the need for improved funding.

Economists assert that significant structural reforms have led to more transparency, accountability, and openness in the design and implementation of public projects, and an enhanced donor relationship.

The immediate response from analysts, including opposition members in parliament, indicate that the MCA will enable government to secure more funds for accelerated economic growth, with a GDP growth rate of 8.0 percent per annum being considered adequate to reduce poverty and enhance the lives of all Ghanaians.

Ghana still needs to look beyond the MCA for economic growth; in particular, attention must be focused on attracting more domestic and foreign direct investments, especially private-sector led, to prevent an over-reliance on official development assistance. But the MCA is a grant that need not be repaid and the conditions are strictly related to prudent management of the funds.

Ghana could well benefit from continuous funding from the MCA as long as it fulfills the mandate to reduce poverty by ruling justly, investing in its people, and empowering them for economic freedom.

Looking ahead

The US Congress has approved an amount of $1 billion in initial funding for the MCA in 2004. President Bush has pledged to increase this to $5 billion a year, starting in 2006, which is an increase of about 50 percent over current development assistance.

The MCA is without doubt alternative and substantive funding that offers the economy a bright chance for improving the fortunes of its people, without imprisoning them in the rigours of interest rates and the shackles of external debt.

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