ADDRESS BY H.E MR. ISAAC OSEI, HIGH COMMISSIONER

OF GHANA TO THE UNITED KINGDOM AT THE JUBILEE

DEBT CAMPAIGN'S ANNUAL GENERAL MEETING

ON SATURDAY, 16 MARCH 2002, AT THE

TRADES UNION CONGRESS, LONDON

Mr. Chairman,

Distinguished Ladies and Gentlemen,

Let me say how delighted I am to have this opportunity to play a part in the Annual General Meeting of the Jubilee Debt Campaign. I thank you, Ashok Sinha and the Board of Jubilee Debt Campaign for the honour done me by your invitation.

We in Africa appreciate the efforts of the campaign because the cycle of poverty we find ourselves in has with the present level of the debt stock and debt servicing lunged us further into a vicious circle of poverty. Our need to break out of this vicious circle and offer our people a better life has led some African countries including my own country, Ghana to accede to the Highly Indebted Poor Country Initiative (HIPC). Our present predicament has also generated the New Partnership for Africa's Development (NEPAD) which all African countries accept a blueprint for development

I am an African from the West African country of Ghana. Permit me therefore to say a few words about the realities of my continent. Let me, however, preface my comments on the continent by emphasizing that Africa’s diversity is its hallmark and indeed as the representative of the Government and people of Ghana, I would have preferred to talk simply about Ghana. My comments about Africa are to enable us paint a clearer picture in our minds eye about what is and what is likely to be if current trends continue.

Poverty is endemic in Africa and today about 40% of all our people live in abject poverty earning less than a $ a day. Average incomes are approximately $330 per annum, which is only 1.3% of the per capita income of the United Kingdom. Massive investment is required if set international development goals are to be attained. Official development assistance (ODA) stagnates while foreign direct investment is all but negligible. Indeed in 1990, ODA from OECD countries was 0.34% of GNP. After a decade this share was only 0.24%. This is way below the UN target of 0.7%ofGNP. Africa has about 10% of the World's population yet receives only 1% of total foreign direct investment.

Many of our people still rely on untreated water from streams, rivers and hand-dug wells. Access to potable water is denied at least 42% of the people. Many Africans especially women and children walk long distances to fetch water and fuelwood. This has serious implications for both the environment and health of the people, Mortality rates for African children under 5 years is 140 per 1000 and average life expectancy is only 54 years. In Africa, only 41% are functionally literate and there are only18 telephones (mainline) per 1000 people compared with 146 worldwide. Many transactions which can be concluded by phone, fax or email have to be carried out by physical presence, with people travelling long distances through paths and using poor road infrastructure .So we are caught in a trap-the poverty trap. The ECA estimates that in 1987 200 million Africans lived in poverty. In 2001 this had risen to 300 million.

In order to extricate our continent from this trap, Africa has relied on multilateral and bilateral donor support which has now led Africa into debt which the continent's individual countries cannot sustain.

It is significant to note that despite Africa's abject poverty, which is universally recognised, Africa continues to transfer to our creditors monies amounting to almost four times what it spends on healthcare.

Africa has found itself in this unfortunate situation due to poor earnings from exports, increasing unemployment and increasing import bills. This has crippled key sectors like education, health and infrastructure development.

Under IMF and World Bank programmes, African countries have contracted huge loans. Unfortunately, most of these policies did not only fail, but left Africa with huge debts which have to be serviced at the expense of the well-being of our peoples.

In fact, many African countries have already engaged in several debt rescheduling exercises owing to harsh economic conditions. They only postpone payment, leaving basic problems unsolved. We, in Ghana, have had our own version of these reforms dictated by the IMF and the World Bank. Since 1983, Ghana had embarked on the Economic Recovery Programme, Structural Adjustment Programme, and the Programme of Action to Mitigate the Social Cost of Adjustment (PAMSCAD), but these have all not brought smiles onto the faces of Ghanaians.

While some of these failures could be attributed to exogenous shocks like falling prices of cocoa and gold (Ghana's major exports) and the hike in the price of crude oil (Ghana's major import), weak macro-economic management and corruption also worsened the situation.

As you are already aware, the HIPC initiative which was launched in 1996 has been perceived as the first international effort to deal decisively with the debt problem of the world's poorest countries.

It is expected to remove the debt overhang for poor countries that are seen to pursue economic and social reforms targeted at poverty reduction and consistent with the 2015 International Development and Poverty targets. It also aims at reducing multilateral debt and helping poor countries exit permanently from their debt problems.

In Ghana, the problem of macro-economic mismanagement is being addressed decisively by the newly elected government which has restored financial discipline in the system. This had led to significant progress towards macro-economic stability.

In March 2001, the new government which had been in power for barely three months, realising the precarious economic situation and huge government debt (both internal and external) decided to take advantage of the HIPC initiative. This was because no meaningful economic progress could be made without some relief from debt repayment.

Ghana had in the past conducted Debt Sustainability Analysis but could not reach the threshold to qualify for HIPC debt relief. In 2001, Government adopted an economic programme with the paramount objective of curtailing inflation and putting public finances back on a sustainable path.

This program was the initial phase of a medium term strategy aimed at reducing domestic indebtedness and freeing up scarce resources for investment and growth in the Ghanaian economy. Government also worked to elaborate and expand this strategy, with broad-based participation of civil society and the international community, into a comprehensive plan for accelerated development and sustained poverty reduction, called the Ghana Poverty Reduction Strategy (GPRS).

Ghana's debt sustainability analysis was based on end-2000 external debt burden of about US$6.1 billion. Of this, 65% was owed to multilateral creditors, 28% to bilateral and about 7% to commercial creditors.

The debt sustainability analysis conducted indicated that Ghana qualified for HIPC relief with the present value of debt/budget revenue ratio of 575% at the end 2000, which was well in excess of the HIPC threshold of 250%. Current estimates suggest that Ghana could receive debt relief equivalent to 56% of the value of its external debt at end-2000 under the enhanced HIPC initiative. Out of the total relief expected from the enhanced HIPC, 80% will be used to fund further poverty-related expenditures as specified in the GPRS and 20% to reduce domestic debt.

Due to Government's liquidity and chronic BOP problems, Ghana requested for deferral of amounts due over 2001, designed to fill the financing gap. Paris Club creditors deemed it necessary and a deferral per Paris Club Agreed Minutes was signed on 10th December 2001. Ghana also requested for a shift in the cut-off date to a more recent date since very little debt was contracted before the January 1983 cut-off date. I must say here that again the Paris Club creditors saw the need to move Ghana's cut-off-date from January 1983 to 20th June 1999.

Government has finalised the preparation of the Ghana Poverty Reduction Strategy for 2002-2004 which built on the Interim PRSP, with greater emphasis on participation of key partners, including civil society, the media, private sector, all arms of government, development partners as well as decentralized agencies.

The GPRS represents comprehensive policies to support growth and poverty reduction over the next three-year period. This is based on government's conviction that the economy of Ghana needs to be managed effectively to create wealth for the benefit of all Ghanaians. Wealth creation is therefore the main thrust of Ghana's PRS. The priorities over the period are infrastructure development, modernised agriculture based on rural development, enhanced social services, good governance and private sector development to ensure that it is capable of acting effectively as the engine of growth and poverty reduction. This is to lead to the creation of wealth at a faster rate in order to reduce poverty in a sustained manner.

Preparations of the GPRS was a difficult and taxing experience since this document was preceded by two (2) national development strategies which met considerable challenges in part, due to weak national ownership, unrealistic implementation strategies and inadequate financing. The earlier strategies also had weak linkages between the Medium Term Expenditure Framework and the annual budget for which the GPRS seeks to address among the other goals.

Considerable progress was made in achieving macroeconomic stability. From a peak of 42% in March 2001, consumer price inflation declined to 21% by December 2001 as compared to the programme target of 25%. Following a sharp depreciation in 2000, the cedi stabilized at around 7,200 per U.S. Dollar during 2001 and the objective of 4 per cent real growth was realized. Interest rates which had arisen to an astronomical level of 52% also dropped to 30% by December 2001. These positive results were achieved by firm fiscal discipline.

Inadequate aid inflows due to government's decision to access HIPC relief, request for a more recent cut-off date and suspension of debt service payments to non-multilateral agencies, as a result of liquidity problems were some of the problems faced before reaching the HIPC decision point. The Non-Paris Club members and Commercial creditors suspended disbursements of loans already agreed to. Since these creditors were co-financing strategic projects, there was a slow down in some major projects that included those in education, health and energy sectors.

The other problems related to the tracking of HIPC expenditures. Government's chart of account code when designed under the on-going Public Financial Management Programme did not initially include HIPC expenditures codes. Government therefore had to incorporate these codes and that culminated in an intensive training of regional and district accountants in all the ten regions of Ghana before Ghana could reach the decision point, which was then slated for December 2001.

Ghana finally reached the decision point for relief under the initiative on 22nd February 2002. Indeed, in his budget statement to Parliament on that very day, the Minister of Finance stated that once the eligibility of Ghana to apply for the HIPC debt relief was established, the country would be able to suspend debt service payments to bilateral donors. Indeed, that brought in budgetary savings of about $190 million in the 2001 fiscal year.

In the medium term of 2002-2004, Ghana expects to save an average of $200 million per annum on account of the enhanced HIPC initiative. Again, Ghana is estimated to receive $249 million, (an equivalent of 4% of its GDP) in 2002. This consists of $153 million in traditional debt relief and $96 million from the enhanced HIPC debt relief.

Indeed, the International Monetary Fund (IMF) and World Bank's International Development Association (IDA) have agreed to support a comprehensive debt reduction package for Ghana under the Enhanced HIPC initiative. As a matter of fact US$ 3.7 billion out of our US$ 6.1 billion external debts have been forgiven.

Against this background of debt relief from the Bretton Woods Institutions, comes the G8's expected action plan for a new relationship with Africa based on the New Partnership for African Development (NEPAD), a concept put forward by African leaders as the way forward for the continent.

The envisaged relationship would lay emphasis on partnership, mutual accountability and responsibility. African countries are expected to identify how they have contributed to the problems of the continent and try to wipe out conflict from the same.

We really appreciate the generosity of our development partners in recognizing the efforts being made by poor countries to take responsibility of our own development. The HIPC initiative is a good sign and it is welcome.

Nevertheless, what we are asking for, and which has the support of the Jubilee Debt Campaign, is not merely a relief from the payments or servicing of our debts which only means postponing payments at a future date, but a total cancellation of our debts so that we could start this new relationship on a clean slate. This, we are convinced, is not beyond our development partners capabilities.

Evidently, there is no way that most of the world's poorest countries could pay their debts. Thus, providing debt relief with the budgetary savings expected to be used for social programmes intended to reduce or totally eliminate the suffering of the poor is a step in the right direction.

Poor countries' massive and unsustainable external debt remains a major obstacle for growth. It deters private investment, threatens the sustainability of reforms, disrupts the smooth functioning of the state and calls into question the very survival of some poor countries' economies.

The challenge facing the international community is how to deepen global integration, without impairing the interests of poor countries. Indeed, it is in the long term interests of the rich countries of the north to offer the rest of the world the opportunity afforded by economic integration, just as it is in the interests of poor countries of the south to exploit them.

This can be done by a combination of debt cancellation, increased aid and freer trade. There are strong reasons for the rich countries to assist the poor. First, the slowing down of the world economy exacerbated by the terrorist attacks on September 11, has hit the poorest countries' exports hard - in volume and price. Second, reformers in poor countries need to be able to (show a pay-off to their peoples) deliver on electoral promises. Of course, aid is not the only way to alleviate poverty. It is estimated, for example, that removing all trade barriers could raise the income of poorer countries sharply, lifting 320 million people out of poverty by 2015.

It is said that poor countries which can establish a stable macro-economic balance and the rule of law have a much improved chance of attracting aid and investment flows needed to raise incomes. But this is easier said than done. Scarcely more than half of the highly indebted poor countries that might qualify for the World Bank's debt relief scheme have reached the first stage. However, for too many of these countries, protectionism by developed countries could destroy whatever benefit, aid or debt relief could bring to the poorest of the poor.

There is the need to put assistance in the wider context of economic stability and macro-economic reform. It is against this backdrop that we urge you to continue your good work. You are the voice of the voiceless and the vulnerable people in this global landscape of ours.

We know that with the efforts that you are making, there is light at the end of the tunnel for us.

Thank you.

Ghana Review International (GRi) 1994 - 2002