Sunday, 5 July 2015

A book review: The Limits of Institutional Development: Changing Rules for Realistic Solutions

Andrews, Matt (2014) The Limits of Institutional Development: Changing Rules for Realistic Solutions. Cambridge: Cambridge University Press

This book should be read by all those involved in supporting or promoting good governance in the Global South.  It not only demonstrates that the current approach by the donor community is failing, but suggests how a very different approach would lead to much better results.

“The basic story line is that half of 145 countries that have had donor sponsored reforms in place saw declines in indicators of government effectiveness over a recent ten-year period” (page 15).  Why is it that after at least a quarter of a century of spending of billions of dollars and the participation of tens of thousands of consultants introducing ‘global best practices’ that so little has been achieved?

At the macro-level, the problem is capital flight from the Global South to the industrial centres of the world.  In terms of sub-Saharan Africa, a study by many NGOs last year[1] demonstrated that whilst sub-Saharan Africa receives less than $140 billion each year, mainly as loans, foreign investment and aid; nearly $200 billion leaves, mainly as profits made by foreign companies, tax dodging, and the costs of adapting to climate change. The result is that sub-Saharan Africa suffers a net loss of capital of almost $60 billion a year.  So the answer to the question, ‘why has foreign aid not led to economic development in sub-Saharan Africa?’ is that the continent is suffering a significant net loss of capital each year.

This book concentrates on the micro-level and provides extensive evidence that the current approach of using expatriate consultants to introduce ‘best practices’ does not work; even when assessed by the donors themselves, in their own terms. So for example, a study published in 2011 by the World Bank found that fewer “than 40 percent of the eighty countries receiving World Bank support for public sector reform between 2007 and 2009 registered improved CPIA governance scores in that period. A quarter of these countries actually saw such scores decline, whereas more than a third stayed the same” (page 13).

Development agencies are not facilitating development

In my area, public financial management, the donors have a standard set of reforms or techniques (accrual accounting, Medium Term Expenditure Frameworks, Integrated Financial Management Information Systems, programme budgeting, single treasury accounts and risk-based auditing) which are introduced and re-introduced (after earlier failures) over and over again. Whatever the local environment, from Eastern Europe to failed or post-conflict states in sub-Saharan Africa, the technical answers are almost always the same.  These appear to be answers in search of a problem and most often are square pegs for round holes.  But they do work in the interests of both the donors and the consultants involved.  The donors are able to disburse funds against standard outputs and the consultants have an easy life introducing the same reforms from one government to another.

Due to the capital at their disposal and their gate-keeper role, in terms of both the tools and techniques to be used and the consultants employed, the donors are, “increasingly shaping the ideas, opportunities, demand, and supply of public sector institutional reforms in developing countries” (page 7).  Not only do, “generic models dominate the reform agenda of development agencies” but, in addition, these have “a strong neoliberal influence on reform content” (page 7). 

First, the standard institutional reforms, “aim to foster market-friendly governments through interventions like privatization, deregulation, trade liberalization, and… [the promotion of] competitive markets” (page 8).

“Second, reforms aim to create disciplined governments” (page 9). “Ninety percent of the forty sample countries took steps to discipline their public finances and civil service regimes and to streamline debt in the first four years of World Bank–sponsored institutional reform” (page 9).

Thirdly standard techniques or ‘best practices’ are common, for example, “fiscal rules, medium-term budgeting frameworks, and internal audit regimes” (page 10).  As a result, “market-friendly, disciplined, and modernized government… themes dominate more than 70 percent of World Bank-supported [administrative reform] projects” (page 11).

This approach could be acceptable if it achieved consistent success, but this appears to be far from the case.  Assessments by the World Bank indicate that, “Public financial management (PFM) scores improved in 62 percent of countries after such reforms but stagnated or fell in nearly 40 percent. Corruption, transparency, and accountability scores improved for 53 percent of the nations with public sector reforms, remaining static or declining in 47 percent” (page 213). Recent evaluations “reference the way many reforms ignore context, for instance, promote demanding best practices, and fail to establish broad country-level ownership”  (page 213/4).  In many cases governments may introduce institutional reforms in order to impress the donors and so gain further funds in the short-term, but such reforms are necessarily accepted and so may not result in improved governance.

A new approach is needed

Matt Andrews advocates a new approach that he terms Problem Driven Iterative Adaptation (PDIA). This “calls for interventions that address context-specific problems through stepwise processes of purposive muddling by broad groups of mostly local agents” (page 228).

Problem Driven Iterative Adaptation -type reforms have “three key dimensions: (i) They facilitate problem-driven learning; (ii) they involve stepwise interventions that allow processes of purposive muddling and action-based learning, which helps change agents see what works, why, and what next steps they should take; and (iii) they engage broad sets of (mostly local) agents providing different functional contributions that ensure reforms are viable and relevant” (page 216).

First we need to identify the specific problems that the institutions face.  This needs a detailed understanding of the current environment and the key challenges, weaknesses and capabilities of the local institutions.  In most cases this will involve a key role for local civil servants who have the intimate knowledge of their organisations, systems and processes that can only be gained by working within the organisations for several years.  Consultants may have a role to play, but the local experts must lead and really own this process. Their views have to be respected and carefully listened to.  But even when using local officials, “it is important to choose those who have not mastered the art of isomorphic mimicry and reforms as signals” (page 231).  The current reform approach supports a specific modernisation paradigm which in reality consists of neoliberal economic policies and New Public Management styles reforms which have had questionable success even in their home countries.  Problem Driven Iterative Adaptation requires all concerned to concentrate on the local specific problems and not to have been hood-winked by the questionable benefits of the standard reform tool-kit.

Second reforms should build, on and not replace, current techniques, processes and expertise.  Major reforms inevitably lead to reduced effectiveness and control, at least in the short-term.  We need iterative reform addressing key, specific weaknesses in existing systems. “All manifestations of good, better, or best practice should be subjected to stringent tests” (page 230). “It is extremely difficult to imagine change toward a PDIA-type approach in the presence of processes that incentivize actors to focus on large, pre-programmed, solution-based projects” (page 230).

Problem Driven Iterative Adaptation is about building adaptive capacities to change in developing countries.  This is an essential capacity for any institution, but is critical in many of the public sector institutions of the Global South which are still dominated by centralised and hierarchical bureaucracies which face fast changing environments not least because of the demands of climate change.

We need to ask simple questions of reforms.  “Are new problems being identified and constructed, using data, to provoke action? Are stepwise reforms being introduced to address problems, or are they building on prior steps? Is there evidence of short-term lessons about what works and why? Are reform communities being developed, combining agents providing the functions necessary to achieve change? The idea is to reward developing country governments for gradually becoming more functional and adaptive” (page 228/229).

The international financial institutions and the bilateral donors have a major role in recognising that the current approaches are not working – they must start to allow and introduce alternatives.  “More flexible, problem-driven funding streams could be provided to allow problem identification and stepwise implementation” (page 230).  A key step needed to facilitate significant change involves changing the money rules in development. Certain reforms are still implemented as a condition or to comply with donor recommendations.

This book is an important step in re-thinking the rules for institutional reform across the Global South.  Another world is possible, but donors have to ensure that, based on a recognition that the current approach is not working, that they change the rules of the game.  We need a paradigm shift from the easy introduction of standard ‘best practices’.  We need to move to an approach that is based on iterative and incremental reforms, addressing key local challenges which are led by local officials who have not been seduced by the questionable benefits of the currently fashionable standard reform agenda and its neoliberal overtones.

[1] Health Poverty Action et al (2014) Honest Accounts? - The true story of Africa’s billion dollar losses

Sunday, 21 June 2015

Major Study Finds Benefits of Accrual Accounting not Delivered to Members of Parliament

Ezzamel, M., Hyndman, N., Johnsen, A., & Lapsley, I. (2014). Reforming central government accounting: an evaluation of an accounting innovation, Critical Perspectives on Accounting, 25 (4/5): 409-422.

This is an important study of the introduction of accrual accounting in the Scottish Parliament as an example of the results of this reform introduced by the UK central government from 2001.  It was undertaken by four eminent professors in the field of public financial management who had direct access to parliamentarians as one was an expert advisor to the Finance Committee.  As a result, the authors had access to both documents in the public domain and privileged access to the accountability process of members of parliament.  The study included interviews with members of the first two Scottish parliaments from 1999 to 2007.  This covered the first five years of the introduction of the new accounting reforms and so went beyond the initial period which may have included both teething problems and enthusiasm for the reforms.

The authors conclusions are that the move to accrual accounting was part of the reforms of New Public Management and were not directly conducive to addressing the information needs of members of parliament, so they say that:

“there is evidence in this paper, particularly from government policy documents, which suggest that a major motive for this innovation was managerial... any privileging of the managerial interest group may have attenuated the position of parliamentarians.  (page 421)

Thus the move to accrual accounting did not lead to increased accountability. 

This study also confirms the view that one of the key beneficiaries of a move to accrual accounting are members of the accounting profession and especially the consulting firms (which explains why IFAC, the accounting institutes and the major accountancy firms are so keen to promote this type of reform).  The authors state that:

“there is a suggestion that the advancement of the case for accrual accounting by central government has given an opportunity to vested interests – management consultants and leading international accounting firms – to gain commercial opportunities (Christensen, 2002; Christensen and Parker, 2010).” (page 415)

The studies major concern is that the adoption of accrual accounting did not address the information needs of members of parliament and so was not able to increase their ability to hold the executive to account, as the following quotations demonstrate:

“this innovation did not connect with the focus of our study – parliamentarians. RAB [accrual accounting] had started life as an NPM type managerial reform. It was latterly re-branded as a useful tool for parliamentarians.” (page 416)

“expert advisers to Members of the Scottish Parliament express the view that only a minority of MSPs can challenge the financial information in a meaningful way.” (page 419)

The present system of RAB is too complex for parliamentarians who struggle to make effective use of it. (page 420)

There is evidence that Members of the Scottish Parliament are not confident in the handling of RAB-type information. However, in part this is a reflection of the sheer volume of information to which these Members of Parliament are exposed – information overload. (page 421)

The paper ends with the following important conclusion:

“The literature suggests elected members of parliament have limited financial expertise. This study suggested the RAB innovation was flawed with respect to parliamentarians, because, while, on the face of it, this form of accounting went beyond narrow financials, it failed to represent the parliamentarians’ interest in issues of activity, outcomes and of quality of service within its financial framework in a manner in which they could utilise this information effectively.” (page 421)

The paper also includes the following interesting quotations:

“The idea of externally induced innovation was advanced by Van de Ven (1986), who considered such induced innovations as potential valuable to successful organisations. However, he argued that induced innovation in poorly performing organisations may simply perpetuate poor performance.” (page 411)
Van de Ven AA. (1986) Central problems in the management of innovation. Management Science 1986;32(5):590–607.

‘‘In any discussion of the expenditure information provided by the government, there is at least one aspect on which there is agreement. It is difficult. Difficult to compile and difficult to understand. In part, the difficulties are due to the size and complexity of the government’s financial transactions. In part to the requirements of users, who differ greatly in what they want and in their experience and expertise. But there are many who have said that difficulties also arise because of the way information is presented.’’ (Likierman and Vass, 1984, p. 5) (page 414)

The paper includes the following reference that argued for the introduction of accrual accounting:
National Audit Office (NAO). Financial reporting to parliament, report by the comptroller and auditor general, July 1986. HMSO; 1986.   
However, subsequent reports from the NAO have suggested that many of the supposed benefits of accrual accounting have not actually been delivered.

The authors go on to quote one former Finance Minister as saying:
“I think the negotiation of the budget is just a nightmarish process as it involves the Parliament and the Ministers, so I suppose they [members of parliament] probably feel that they only really check that there is nothing fraudulent, and also maybe influence a bit at the margins. And that is probably fair. I think this is partly to do with the volume of the information and the complexity of it” (page 419)

They go on to emphasise the general incremental of budgets in the public sector, at least from the perspective of members of parliament:
“the incremental nature of budget setting in the public sector, in which all of the focus is on the size of the increment or ‘growth’ monies and the prioritisation of these resources.” (page 421)

The authors also indicate that whilst financial reporting to members of Parliament may be difficult, reporting the results of public sector expenditure are even more problematical:

“these MSPs displayed a high level of understanding of what RAB was seeking to achieve. They exhibited major concerns with the setting of targets, their relationship to policies and wider objectives and resources devoted to thematic priorities.  (page 421)

Sunday, 14 June 2015

Cash Basis IPSAS to be Revised

The IPSAS Board is finally getting around to revising its Cash Basis IPSAS and removing the aspects that have proved to be impractical (consolidation, third party payments and certain disclosure related to donor assistance) see the agenda of the June 2015 meeting of the IPSAS Board agenda:

This should mean that governments in the Global South are finally able to fully comply with the revised IPSAS once it is issued - currently this has not proved possible for any single government globally (mainly due to the key current requirement for full consolidation of all controlled entities - something that not a single government in the world currently undertakes. 

Where governments currently have plans to move to the accrual basis of accounting (planned for 2016 in Nigeria, for example), such plans should be delayed to take into account the proposed changes to the Cash Basis IPSAS.

The relevant agenda paper (3) can be downloaded direct from:

In 2008 the IPSAS Board established a Task Force to review the "major difficulties that public sector entities in developing economies encounter in implementing the Cash Basis IPSAS".  This Task Force reported in 2010, but no further action was taken.  The IPSAS Board now plans to develop and issue an Exposure Draft on a revised Cash Basis IPSAS.

The IPSAS Board agreed at its June 2015 meeting that a first draft ED for a revised Cash Basis IPSAS should be prepared for their next meeting in September.  This is to include the following key revisions to the current IPSAS:

(a)    Consolidation: is to be encouraged (not required) for all controlled entities.

(b)   External Assistance: requirements for disclosure of cash external assistance will be retained, but other requirements only to be encouraged and reduced (so project aid will not be required to be reported).

(c)    Third Party Payments: Requirements to report third party payments by parties outside the economic entity are to be encouraged only and so will no longer be a requirement.

Tuesday, 19 May 2015

Accrual IPSAS would be Costly: - Reduce Accountability and Increase Corruption

Accrual accounting was developed in the private sector to measure annual profit – so it is not relevant for the public sector.

A move to accrual accounting moves from actual, objective, hard cash to estimates which can be manipulated.  In the cash basis the actual payments for capital projects are compared with the budget.  Under accruals only estimates (depreciation) are provided.  Similarly, with the cash basis the actual cash collected is reported.  Under accruals we move to estimates of the revenue that is expected to be collected.

 “In most cases it is too soon to identify any discernible benefits from better resource management” - UK National Audit Office, 2003

All the objective evidence from the few countries that have adopted accrual accounting show that it is expensive and does not actually provide the expected benefits.  In contrast, the financial statements are much more difficult to understand and so accountability is worse.

“there was little evidence that [accrual] information was extensively used in decision making…  the costs were seen as substantial”  Connolly and Hyndman, 2005

Only five of the governments of the 20 largest economies in the world use accruals for their central government accounts.  The following have not adopted accrual accounting for their central government financial statements:

Argentina               Brazil                 China                   Germany            India                          Indonesia
Italy                        Japan                 Mexico                 Russia                Saudi Arabia
South Africa          South Korea        Turkey.

Only 18 central governments have issued accrual based financial statements.  So 90% of governments still use the modified cash basis.  Birmingham City Council adopted it in 1850 – but it was not adopted in Westminster for another 150 years.  The Irish Government does not use accrual.

“there was no evidence that the perceived benefits from the introduction of... accruals accounting... were being realised”  - Mellett, Macniven & Marriott, 2008

The accountancy bodies (like ICAN and IFAC) and the accounting firms support the accrual basis as it provides lots of jobs for accountants and consultancy work for their firms.

Number of accountants in central government increased from less than 600 in 1989 to 2,200 in 2003 – period accruals was introduced in UK central government.

Is providing jobs for poor accountants a real priority for the Nigerian government?

The British war ministry adopted accrual accounting in the early 1920s.  But this reform was reversed a few years later as the benefits were less than the high costs.

For information read:

Tuesday, 7 April 2015

Nigerian judiciary workers demonstrate how to ensure good governance

Donors and the international financial institutions are keen for developing countries to adopt good governance, but few appear to be supporting the current judiciary workers strike in Nigeria. 

The workers in each of the 36 states were on strike in July last year and again from the beginning of January this year.  The strike is over the independence of the judiciary and the implementation of the 1999 Constitution that requires the judiciary to receive its funding direct from the Federation Account (where all the oil money should be collected).

Although the constitution of Nigeria provides for an independent judiciary, the
judicial branch is susceptible to executive pressure, particularly at the state and local levels.   There have been numerous calls for a more independent judiciary over the years, both from the judiciary itself and from outside. In 2009, some prominent Supreme Court judges called for a more independent judiciary.

In January 2014, the Federal High Court ordered the Accountant General of the Federation to deduct monies intended for the judiciary from the Federation Account and to pay such sums to the National Judicial Council (NJC) for onward transmission to the Chief Judge in each state.  Since then judiciary workers at the Federal and state levels have been struggling for this judgement to be implemented.

Justice Adeniyi Ademola described the disbursement of funds for the judiciary by the executive as unconstitutional and a threat to the independence of the judiciary.
He said the provisions of sections 81(3), 121(3) and 162(9) of the Federal Constitution of Nigeria were clear and straightforward and should therefore be complied with. 

According to the Judge, the judiciary should not longer have to beg the executive for funds. The Judge noted that both the National Assembly and the Independent National Electoral Commission (INEC) enjoyed independence of funding and that the same should apply to the judiciary in accordance with the constitution.

National President of the Judiciary Staff Union of Nigeria (JUSUN), Marwan Mustapha Adamu said: “remember that this judgment was delivered in January 2014, since then, government has engaged us in discussion about 20 times”.

The Federation Account Allocation Committee (FACC) of the Federal and state Accountants General agreed to set up a technical implementation committee at their meeting in June, 2014, but this has not been implemented.

Marwan lamented that despite the Memorandum of Understanding (MoU) which was signed to ensure the suspension of the judiciary workers strike in July last year, the Accountants General of the states are insisting that they cannot meet the union’s demands, due to declining oil revenues.

“So what is difficult, when the figure is there for everybody to see how much is budgeted,” Marwan queried. He alleged that since the MoU was signed the union has not been invited to any meeting to discuss how to implement the court order.  

The judiciary workers and their union, JUSUN finally lost patience and re-commenced their strike from the beginning of 2015.  The Federal Government has now agreed with JUSUN, as have around a third of the 36 states.  However, the strike continues in the other states that are yet to adopt the constitutional good governance demanded by the trade union.

In Edo State, for example, the judiciary workers held a protest in mid-March and marched through the centre of Benin City to demonstrate their determination to continue their strike.  The previous day the local JUSUN president, Uyi Ogieriakhi had met with the governor of the state.  However, the governor had expressed his opposition to the strike and his determination not to provide greater independence for the state judiciary.

The judiciary workers are equally determined to continue their fight for good governance and independence of the courts. In an exclusive interview, Uyi said that their demands were “sacrosanct in terms of good governance”.  At the protest he said the strike would continue, even for two years, and was loudly cheered by his members.

The donors and financial institutions talk about good governance, so you would expect them to be supporting the striking JUSUN workers over their struggle to gain proper independence for the courts in Nigeria. However, when I asked their local president, Uyi Ogieriakhi, whether they had received any support from the donor community, his response was, “Erm, erm,  I do not think that is the case now”.

Wednesday, 26 February 2014

When the British Government tested and rejected accrual accounting

None of the literature on moving to accrual accounting appears to note the experience in the British war ministry in the early 1920s.  The accrual basis of accounting was introduced, but this reform was reversed a few years later as the benefits were seen as being less than the significant costs.

During the First World War numerous accountants were recruited from the private sector into war related departments.  Some of these accountants were critical of the differences between public and private sector accounting.  As a result, in 1918, parliament was recommended to adopt the basis of income and expenditure (accrual basis) for both annual estimates and the accounts of individual departments.  These changes were only actually adopted by the War Office from 1st April 1919.[i]  “However, the already existing cash accounts… were continued pending further experience.”[ii]  The advocates of the new scheme hoped that the new accounts “would show the Unit Commanders the money cost of achieving efficiency in their units” and, with de-centralisation, these Commanders would be encouraged to “attain economic control of the units under their command.”[iii]

Accrual based financial statements were actually produced for six years.  But in 1925, the Army Council, with the support of the parliamentary Public Accounts Committee, decided that this approach required additional costs of at least £200,000 a year (and twice that amount for the first year), but that  “the experiment had not led to commensurate economies in administration and seemed unlikely ever to do so”[iv].  So the experiment was terminated and the accrual based accounts were no longer produced. 

In 1950 a Parliamentary Committee also carefully reviewed the evidence for the general adoption of accrual accounting and decided that:

            “We agree with the principle that the main Exchequer Accounts and the framework of both Estimates and Appropriation Accounts must remain on a cash basis.”[v]

This Committee also concluded that the adoption of the accrual basis would:

            “necessitate the valuation of all existing assets and an estimate of the probable remaining useful life of each – a gigantic task requiring the listing of figures many of which could be no more than guess work.”[vi]

[i] HMSO (1950) Final Report of the Committee on the Form of Government Accounts, London: HMSO: page 69, paragraph 2
[ii] Op cit: page 70, paragraph 2
[iii] Op cit: page 70, paragraph 2
[iv] Op cit: page 70, paragraph 5
[v] Op cit: page 13, paragraph 26
[vi] Op cit: page 20, paragraph 46.

Thursday, 12 September 2013

Public Budgeting - a manifesto for the Poor

If poverty is really to be reduced, then the government must redistribute income and wealth by taxing the rich and providing basic services at no cost for all. We should campaign against charging for public services and cost sharing as this excludes the poor.  Creating a ‘business friendly’ environment to attract foreign direct investment does not lead to a trickle down of wealth from the rich to the poor.  In contract, all the evidence suggests that it results in increased inequality with wealth gushing up to the corrupt elite, whilst the majority suffer endemic poverty.

Economic elites are often well-positioned to influence policy and block tax increases.
Investment power and political power correspond to two distinct modes through which economic elites can exert influence. However, the Arab Spring, the Occupy Movement, protests and strikes in Brazil, China, Turkey and across sub-Saharan Africa show that another world is possible. We need to campaign with the strength of the organised working class to ensure that the government provides sufficient resources to public services. We need to ensure that the basic human rights of health, education, water and sanitation are available to all.  The resources are available for this program if the government is prepared to make the tax system more progressive. Wealthy companies and individuals should all have to pay their fair share of taxes.

Basic needs as human rights
The following should be basic human rights, but we need to campaign for their achievement:
·      Free education for all children
·      Free health for all
·      Free access to safe water and sanitation
·      Decent minimum wage.

It is widely recognised that basic education should be a human right, for example:

·    Article 26 of the Universal Declaration of Human Rights[i] asserts that: “Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory.”

·    Millennium Development Goal[ii] 2.A is to ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

·    This is supported by the Ghanaian constitution[iii].

However, primary completion rate for sub-Saharan Africa is only 70%[iv]. In 2011, UNESCO said that almost 30 million African children were not in school. This includes nearly 650,000 children in Ghana[v].

Free education should include books, feeding (breakfast and lunch)[vi] and uniforms for at least 10 years for each learner. School fees, cost sharing and all contributions to school funds etc should be abolished. Student grants should be provided for post-secondary education.

In Ghana school fees have been abolished for the first 11 years of schooling. However, the costs of basic school requirements such as school uniforms and exercise books are still too high for poor households and often deter parents from sending children to school[vii].

To fund these educational services, 56 developing country governments, members of Global Partnership for Education, agreed to spend at least of 20 per cent of their total annual budgets on education (with half earmarked for pre-primary and primary education)[viii]. This is supported by UNESCO[ix].

Ghana spends slightly more than 15% of public expenditure on education and so would need to increase spending on education by a third to meet international standards.

Health Care

It is also widely recognised that health care should be a human right, for example:
·    Article 25 of the Universal Declaration of Human Rights1 asserts that:
“Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family”.
·    Millennium Development Goals2 directly relevant to health include:
·     Goal 4: Reduce child mortality
·     Goal 5: Improve maternal health
·     Goal 6: Combat HIV/AIDS, TB, malaria and other diseases.

Thus free health care including medicines for all should be a basic human right.
Charging for primary health care (‘cash & carry’) was as disaster. Health insurance schemes similarly mean that many of the poor are not covered. In Ghana it is estimated that less than one in five are covered by the National Health Insurance Scheme (NHIS)[x]. Moving away from health insurance could save US$83 million each year in Ghana. Enough to pay for 23,000 more nurses. There should be free anti-retroviral medicines for all those who are HIV positive, but this is not included in the Ghana NHIS.

In 2001 African governments pledged to spend at least 15% of their budgets on health in the Abuja Declaration[xi]. In 2012, WHO estimated the minimum spending per person per year needed to provide basic, life-saving services was US$44[xii] and that low-income countries would need to spend a little over US$60 (GHȻ120) per person per year by 2015 to achieve the Millennium Development Goals.

Ghana only currently spends about 12% of its government budget on health or US$27 (GHȻ54) per capita9.  So significant increases are needed in the health budget and a more efficient approach than the NHIS to fund these services.

Water and Sanitation

Public water and sanitation services are essential for sound public health. The Millennium Development Goals call for halving the proportion of the population without sustainable access to safe drinking water and basic sanitation between 1990 and 2015.

The following targets are now being agreed internationally for water and sanitation:
·    use of an improved drinking-water source within 30 minute water collection round trip
·    use of an improved sanitation facility at home, shared between five households or less.
·    all schools and health centres should have water, sanitation and hygiene[xiii].

Across Africa 63% of population use improved drinking-water and 48% use improved sanitation facilities (2011).  In Ghana the figures are 86% and 72%11.

In 2008, at an African Union meeting, African ministers set a target to spend 0.5 per cent of GDP on sanitation and hygiene. Various other studies, notably by UNDP, have suggested that the cost of meeting the Millennium Development Goal for water is around 1 per cent of GDP annually.  So the target for water, sanitation and hygiene (known as WASH) should be 1.5% GDP[xiv].  Ghana only spends around 0.5% of GDP on this sector.

In 2010, at the first high level meeting on sanitation and water for all held in Washington DC, the Government of Ghana promised to spend $350 million (GHȻ700 million) a year on the Water, Sanitation and Hygiene (WASH) sector. However in 2010, only GHC108 million was allocated and GHC132 million for 2011[xv].

A Progressive Tax System

To ensure that adequate public services can be afforded and to help to make society more equitable progressive taxation should be increased by:
·    Raising company and personal income tax rates to at least 30%[xvi] for monthly incomes above GHȻ3,000 (around ten times average per capita GDP)
·    Increase property tax for land/buildings of more than 100ha or value of more than GHȻ100 000[xvii].
·    Import duty on TVs, cars and other electrical goods to be increased
·    Review costs and benefits of tax holidays and free zones and introduce greater controls to reduce capital flight.

“The experience of the first three post-war decades in developed countries, when marginal and corporate tax rates were higher but investment was also higher, suggests that the willingness of entrepreneurs to invest in new productive capacity does not depend primarily on net profits at a given point in time; rather, it depends on their expectations of future demand for the goods and services they can produce with that additional capacity...
However, competing with other potential host countries by offering lower taxes is problematic since it triggers a downward spiral in taxation that reduces fiscal space in all the countries concerned, while initial locational advantages based on taxation tend to erode over time”[xviii].

Across sub-Saharan Africa reduced import tariffs are only partially (30%) being replaced by domestic taxation, mainly VAT.  VAT is very inefficient to collect and is less progressive.  In addition, rates of corporation tax have generally reduced due to tax competition between countries

Property tax Taxation of property and rental income could raise revenues worth an estimated 1-2% GDP in Ghana[xix].  Property taxes should be extended starting with larger urban properties and large foreign owned farms. Revenue lost since lowering royalty tax on mining in Ghana is estimated at US$68 million per year or GHc 102 million17.  The previous tax rates should be re-introduced.

Capital flight involves the deliberate and illegal disguised expatriation of money by companies or individuals taxable within the country of origin. Developing countries lose more money through private capital flight than they receive in donor aid[xx].  Capital flight over 1970 to 2008 is estimated to have been 66% of the GDP of Ghana or over two and a half times the external debt[xxi].  Capital controls should be re-introduced to reduce the level of capital flight from Ghana.

There should be a systematic study of the overall costs and benefits of the existing incentives regime in Ghana, including tax holidays and tax free zones. Reversing the free zone status of existing forestry firms would raise 0.5% GDP in additional revenue17.

Regional bodies (African Union, NEPAD, ECOWAS, UMEOA etc) should take up fiscal issues and tackle some of the problems of transfer prices (which enable international companies to evade tax), information exchange especially with tax havens (to reduce tax evasion by the rich and expatriate individuals and companies), reducing the facilitation of capital flight and off-shore intellectual rights.  Good practice in terms of efficient and effective taxation policies and practices should also be shared and developed regionally.  Regional bodies should also push for governments to collectively retain and, where appropriate, increase import tariffs and corporation tax rates.

Consideration of using some of Ghana’s oil revenue to introduce a monthly Basic Income Grant of GHȻ20 for all people (cost 4.4% of GDP).  This will reduce poverty, improve access to health and education and reduce crime. Petroleum receipts would give a monthly income of around GHȻ6. Could be introduced first in Upper East and Upper West where poverty levels are particularly high.

Per capita GDP per day (assuming working 200 days a year) was GHȻ16 (US$8) in 2012 (nearly GHȻ500 a month). The Daily Minimum Wage is now GHȻ5.24 (from May 1, 2013) (GHȻ141 a month).  People on this wage are still be expected to pay income tax (so tax thresholds should be increased. The minimum pension under SSNIT is GHȻ100 (from 1.1.13).  Real increases are still needed to bring the minimum wage and pension levels up to a reasonable level.


For a more detailed report with targets and analysis of other sectors of public spending see:

Tax Justice Network Africa (2011) Addressing Inequality in Africa through Taxation

This manifesto should be updated when the results of the Sixth Ghana Living Standard Survey are published (September 2014).

[i] UN (10 December 1948) Universal Declaration of Human Rights

[ii] Millennium Development Goals:

[iii] The Constitution of Ghana 1992 – EDUCATION (Article 25).
[v] UNESCO (2012) Ghana country study on out-of-school children:

[vi] “WFP’s Ghana country programme evaluation, as well as studies on the Ghana School Feeding Programme (GSFP), suggests that school feeding is one of the most effective ways to increase enrolment in schools across the three northern regions and in areas of endemic food insecurity (WFP, 2010a; SNV, 2009; SEND, 2008).” (UNESCO 2012: 74)

[vii] GNECC, 2008; CREATE 2007; Avotri et al. 1999; Boakye et al. 1997). (UNESCO 2012: 70)

[viii] Forty-four developing country governments signed up to a target for education spending of 20 per cent of total spending (with half earmarked for pre-primary and primary education) in 2010 as part of their commitment to implement the Education for All Fast-Track Initiative (EFA-FTI). Fifty-six developing countries are now members of the Global Partnership for Education, the successor to EFA-FTI.

[ix] UNESCO (2013) Education for All Global Monitoring Report:
For more information on education spending see:
UNESCO: Institute for Statistics Data Centre. Montreal, Canada.

[x] Oxfam, ISODEC etc (2011) Achieving a Shared Goal: Free Universal Health Care in Ghana

[xii] WHO (2012) Spending on health: A global overview
Basic WHO statistics on spending in each country:
[xiii] WHO and UNICEF (2013): Progress on Drinking Water and Sanitation, 2013 Update.

[xiv] Government Spending Watch:

[xv] The Daily Guide on Wednesday 30, January 2013,

[xvi] In 2006, corporate tax in Ghana was reduced from 28% to 25% (was 30% the year before).

[xvii] Property tax Taxation of property and rental income could raise revenues worth an estimated 1-2% GDP17. Property tax is levied annually by local authorities on the estimated value of the property, depending on the classification of the area where it is located, with the rates range from 0.5 to 3 percent.

[xviii] UNCTAD (2012: XIV) Trade and Development Report 2012 – policies for inclusive and balanced growth, New York and Geneva: United Nations

[xix] Prichard, W. and Bentum, I. (2009) Taxation and development in Ghana: finance, equity and accountability, Tax Justice Network and ISODEC

[xx] SOMO (2008) Taxation and Financing for Development
[xxi] Ndikumana & Boyce (2011) Africa’s Odious Debts – how foreign loans and capital flight bled a continent