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Using the debt crisis to advance donor-driven economic policies: The case of Ghana

Added 17 Mar 2020
On International Women’s Day several Ghanaian CSOs took a stand for improving gender equality in the labour market, education and health services. For example, health CSOs underlined in a manifesto presented to a Minister that “gender inequality still exists in health service delivery, and women’s rights are continuously being infringed on, as they include those living with disabilities and mental health issues lack access to quality health care”. However, Ghana will have to address these challenges while its debt is snowballing. 

A growing body of research shows how, in the previous decade external debt service has grown dramatically in low- and middle-income countries, diverting public resources away from essential services such as health and education. At the same time, IMF-induced austerity measures exacerbate this trend by mandating budget cuts and limits to public sector employment. In this context, the World Bank is promoting market-based approaches to development, which threaten to compromise the delivery of universally accessible services.
 
This blog unpacks how these three intersecting dynamics have played out in practice for people in a country on the frontline of the new debt crisis. 

Debt & Austerity

An increasing share of Ghana’s budget is diverted towards debt servicing. Eurodad research has shown that Ghana’s debt service payments by 65 per cent while education spending dropped by nearly 20 per cent. Furthermore, forthcoming ActionAid research calculated that debt service payments represented 161 per cent of Ghana’s combined health and education budgets in 2019.

Faced with mounting debt, in 2015 Ghana turned to the IMF for a US$ 918 million bailout loan. The program’s main ingredient was a so-called “sizeable and front-loaded fiscal consolidation” – in other words, austerity. The initial program foresaw strict fiscal adjustment targets: Ghana needed to turn the 3.5 per cent (of GDP) deficit in 2014 into a 3.2 per cent surplus in 2017. This target was too large and was regularly missed throughout the program. 

Nevertheless, large fiscal consolidation remained the standard policy advice throughout, which led to cuts in public spending. CSO analysis found that Ghana had lower average real public spending per capita between 2016-2019 than in 2015, pointing to the fact that public spending went down during the program. 

Such strong austerity measures have taken a heavy toll on public service provision in Ghana – compounding the impacts already being felt by increased debt servicing.

The cold reality: Salary reductions and hiring freezes

Another crucial feature of the austerity package for Ghana were the limits to public sector employment through salary reductions and hiring freezes – a regular IMF policy stricture. The IMF program did foresee an exception to this for the health and education sectors, but increased hiring in these sectors would have to be compensated elsewhere. The last review of the IMF loan stated that the performance criteria on wage bills were missed due to “overruns” by the Health and Education ministries. The IMF consequently advised the government to take “corrective measures” related to the public salaries budget. Taken together, this strict wage bill conditionality limited Ghana’s ability to expand public services by adequately staffing them. In addition, women tend to carry out public sector jobs than men, so these measures have a greater impact on them. 
 
Recent academic research demonstrated that Ghana has “serious” shortages of essential health personnel and needs to immediately recruit qualified health staff. However, throughout the program, overall budgetary pressures led to a slowdown in recruitment of health personnel, in particular midwives and nurses. Despite the progress made in this area by Ghana, strict wage bill conditionality undermines the country’s ability to improve skilled birth attendance and pre-natal healthcare, which are crucial to reduce maternal and infant mortality. In addition, a review of Ghanaian press shows that nurses, midwives, and doctors have protested the low wages they receive, compromising staff retention.  

The private sector

This is the context in which the World Bank is supporting private health care and education through its new diagnostic tool - the Country Private Sector Diagnostics (CPSD) (Eurodad has an upcoming discussion paper on this topic) - and potentially associated WB project lending. CPSD calls Ghana to expand for-profit commercial education by relaxing regulations for private providers, actively pursuing PPPs in education and government support for private schools.

However, research by Oxfam demonstrates that the user fees applied by a private school chain in Ghana make their services inaccessible to the poor, thereby potentially entrenching social and gender inequalities. 

Time for a new approach

Governments squeezed by unsustainable debt are more likely to accept policy prescriptions which further erode state capacity. In Ghana, the cumulative impact of promoting austerity measures and greater private sector involvement in public services could have lasting changes on the nature of public service provision. This alters the social contract between the state and its citizens without due consultation of all relevant stakeholders. And the poor suffer most, through the lack of investment in public services so sorely needed in order to reach the Sustainable Development Goals (SDGs). 

Firstly, Ghana needs to a) be supported to progressively raise more domestic funds and b) there must be inclusive and effective international action to tackle global tax dodging. On the first point, Ghana, tax revenue made up 12.6 per cent of GDP in 2018, which is below average in Africa. However, Ghana plans to increase tax revenue to 23 per cent by 2028. On the second point, if tax avoidance is addressed, a fair tax system has the potential to generate a sustainable revenue flow and reduce reliance on debt-creating flows. 

Secondly, a new approach must be taken on how debt sustainability is tackled. It is time to go beyond narrow economic considerations and take into account the impact of debt on a country’s ability to finance internationally agreed development goals and meet their human rights obligations.  Taking a lead from work done within the UN Human Rights Council  the IMF should consider integrating the findings from independent gender sensitive human rights impact assessments into its analyses, and in addition, financing needs for development priorities, and then ensuring that the findings are used to support more timely triggering of debt restructuring. The findings from HRIA should be used to support more timely triggering of debt restructuring. 

Such an approach can mitigate the social impacts of a debt crisis and free up fiscal space for the provision of universal services by adequately resourced public sectors. The Bretton Woods Institutions should refrain from doling out policy advice, which relies on weak consultation of affected populations and which tends to shift the brunt of an economic crisis squarely on the citizens. Instead Ghanaian citizens - and women in particular - should be at the heart of economic decisions and as Ghanaian CSOs emphasised  - gender justice cannot wait.