I.                   MACRO-ECONOMIC ENVIRONMENT AND ECONOMIC PERFORMANCE

1.                   Ghana's macroeconomic stabilization programme initiated in 2001 by the current Government has so far brought about progress in stabilizing the economy. Policy reform has been extensive, despite structural and institutional constraints. The benefits of the stabilization programme have been large, visible, and widely shared. The results are all the more remarkable given the chaotic initial conditions and the extent of external shocks sustained at the time of assuming the management of the economy.

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2.                   The prudent fiscal, monetary, and international trade policy measures pursued largely succeeded in stemming the slide in the economy. The fiscal measures focused on a more effective revenue mobilization, reduction in fiscal deficits, and conversion of short-term debt into long-term instruments. Monetary policy focused on effective monetary management to ensure low and competitive interest rates, single-digit inflation, stable exchange rates, reasonable spread between lending and savings rates, and the establishment of long-term capital market. International trade measures focused on mechanisms to diversify exports and enhance productivity to ensure international competitiveness to achieve a sustainable level of foreign reserves.

(1)               Fiscal Policy

3.                   The declaration of a 'Golden Age of Business' by the government saw the implementation of corrective policies aimed at ensuring the growth and development of the economy. Fiscal measures since 2001 were aimed at achieving domestic primary surplus (above 4.0 per cent of GDP). This was to minimise the government's domestic borrowing requirement in order to reduce interest rates as well as halt the crowding out of the private sector from the credit market. The initial focus of the fiscal policy was on resource mobilisation. Revenue (including grants) as a percentage of GDP rose from 21.02 per cent in 2000 to 29.9 per cent in 2004 but declined to about 27.8 per cent in 2006. 

4.                   This impressive outcome was occasioned by the restructuring of the tax policies that emphasized on broadening the tax base and lowering rates. Tax collection efforts were strengthened while compliance improved. Revenue collecting agencies (Internal Revenue Service, Customs Excise & Preventive Service and VAT Service) were accordingly reorganised. The resultant increase in the country's revenue position led to the narrowing of the fiscal imbalance and a rise in the level of poverty alleviation expenditures notably in the areas of education and health.

5.                   On the other hand total government expenditure as a percentage of GDP rose from   27.7 per cent in 2000 to 33.8 per cent in 2004 but fell to 30.8 per cent in 2005 and went up again to 33.8 per cent in 2006. The higher expenditures in recent times were mainly due to unanticipated transfers to the Volta River Authority as a result of the energy crisis and higher wage demands.  

(2)               Monetary Policy

6.                   The focus of monetary policy since the year 2001 is on achieving price and exchange rate stability as key elements in creating the environment conducive to the achievement of sustainable economic growth.

7.                   To strengthen the central bank in the conduct of monetary policy, parliament passed into law a Bank of Ghana Act at the end of 2001.  This Act gives operational independence to the Bank of Ghana.  This historic new Bank of Ghana Act, Act 612, specifies among other provisions that:

-                    the primary objective of the Bank is to maintain price stability “independent of instructions from Government or any other authority”.  This has refocused the central bank on the major task of inflation control and away from the developmental activities, which characterized the Bank's operations in the past.

-                    a Monetary Policy Committee was established with responsibility for formulating monetary policy, which should bring transparency to the central bank's operations and its communications with the public.

-                    government borrowing from the central bank in any year shall be limited to 10 per cent of its revenue, which ties the hands of government and the central bank in a way that is much stricter than the zero percent ceiling, which prevails in the CFA zone countries, for example.

8.                   The new statutory mandate of the central bank is firmly rooted in a resurgence of public interest in economic policy and a heightened aversion for inflation and awareness of how much stability contributes to raising the standard of living of its people.  The prevailing concern is that instability and weaknesses in the regulatory framework have accounted for the poor performance of the private sector.

9.                   Towards this end the Bank of Ghana maintained the pace in the active pursuit of open market operations and repurchase agreements. The Bank of Ghana also reviewed its interest rate policy and restored the signalling role of the rediscount rate. In the early part of 2002, the Central Bank introduced the Prime Rate as an instrument to signal the Bank's assessment of inflationary pressures and therefore, monetary policy stance. 

10.               Monetary developments in the last quarter of each year have been dominated by large injection of liquidity on account of the foreign exchange inflows from cocoa loan disbursements and strong private sector credit growth.  Consequently reserve money has recorded higher growth rates at this time of the year but declines to lower levels in the first and second quarters of the year.

11.               Broad money supply including foreign currency deposits (M2+) increased from 14.3 per cent in 2005 to 38.8 per cent in 2006. This development was underpinned by strong growth in savings and time deposits (47.5 %) and demand deposits (43.7%) during the period. The increase in M2+ resulted from the expansion in net foreign assets (NFA) of the banking system and net domestic assets (NDA).

(3)               Inflation Developments

12.               Prudential fiscal management and the tight monetary policy stance in the management of the economy initiated in 2001 continued in the subsequent years. The measures led to a deceleration in headline inflation, measured as the year-on-year changes in the consumer price index, falling from 40.5 per cent at the end of 2000 to 10.5 per cent at the end of 2006.

13.               Several distinct but mutually reinforcing domestic and external influences have been at work in bringing about the reduction in the year-on year inflation rate.  Government moved away from Central Bank financing of its deficit and resorted more to non-bank financing. In addition, the relative stability of the cedi and the good harvest of food crops contributed to the falling trend in inflation.

(4)               Interest Rate Developments

14.               One notable development during the past six years is the decline in nominal interest rates, which was generally in line with the decline in inflation and inflationary expectations. The average interest rate on the 91- day Treasury bill has steadily declined from 42.0 per cent in December 2000 to 10.7 per cent in December 2006.

(5)               Exchange Rate Developments

15.               The exchange rate policy was one of the most significant and successful policy measures of the current Government's macroeconomic stabilization programme, which was started in 2001. Developments in the foreign exchange market were supported by the Government's fiscal discipline. Within the first year of the stabilisation programme, the official exchange rate of the cedi was stabilized both in nominal and real terms against almost all the major currencies in the inter-bank and the forex bureau markets. This was in contrast with the developments in 2000 when the cedi depreciated sharply and continuously against the major currencies (The cedi depreciated by 49.8 on annual basis against the US dollar). The cedi has remained relatively stable against the major international currencies despite the global imbalances and instability created by high crude oil prices in recent times. The cedi depreciated by about 1.1 per cent against the US dollar in 2006 compared with a depreciation of 0.9 per cent in 2005. The reasons for the stability of the cedi exchange rate include the increased confidence of Ghanaians in prudential policies of the government.

(6)               External Sector Policy

16.               Against the background of the deteriorating external payments position of the country, as a result of the terms of trade shock in 2000, (depressed prices of main exports, in that year), the country's external reserves dwindled to less than one month's import cover. At the end of December 2001, the level of gross reserves was equivalent to 1.2 months of imports. In 2002 the gross reserve rose to 2.3 months' imports cover and increased further to 3.9 months' imports cover as at end 2003. The external payments position has remained resilient, in the context of unprecedented rise in crude oil prices with a build-up of reserves to US$2.3 billion or 3.0 months of imports cover at the end of 2006.

17.               The large build-up in international reserves has been driven by a combination favourable commodity prices (cocoa and gold), receipts of foreign aid and debt cancellation under the Multilateral Debt Relief Initiative (MDRI).

(7)               External Debt and HIPC

18.               At the end of 2000 Ghana's external debt stood at US$5.8 billion at a level considered very high to be sustainable which rendered the economy externally vulnerable. The debt stock at the end of 2000 represented 224 per cent of exports, 709 per cent of budget revenue and 124 per cent of GDP. Measured in present value (PV) terms, it was 395 per cent of revenue, which is one and half times the level considered to be unsustainable by international standards.

19.               External debt servicing in 2000 represented 9 per cent of GDP. In 2001, the external debt was expected to increase to US$6.2 billion due to new borrowings with another ¢4.4 trillion to be spent on servicing this debt, in addition to the large burden imposed by domestic debt servicing (accounting for 5.5 per cent of GDP). The government therefore opted for the HIPC in 2001, due to the apparent unsustainability of the country's debt profile. Opting for the HIPC is intended to deal, in a comprehensive manner, with Ghana's over all debt burden and to reduce it to sustainable levels in reasonable period of time.

20.               The HIPC initiative contributed significantly to the attainment of the relative macroeconomic stability that the economy has seen since the 2001. The relief enjoyed under the HIPC initiative partly accounted for the increase in reserve accumulation as well as the stability enjoyed in the foreign exchange market during the era under focus.

Selected Debt Indicators

21.               Ghana's overall public and publicly guaranteed external debt stood at US$2,773.4 million at the end of December 2006, showing a decline of US$3,986.4 million over the previous year's stock level. The sharp drop in the debt stock in the review year was mainly the result of the cancellation of Ghana's debt under the Multilateral Debt Relief Initiative (MDRI).

Selected Economic Indicators

*             Introduced in September 2004.

II.                GHANA'S TRADE POLICY FRAMEWORK

22.               The new Ghana Trade Policy which was launched in February 2005 is the country's first coherent document that seeks to provide clear and transparent guidelines for the implementation of the Government's domestic and international trade agenda. The Trade Policy was developed through a comprehensive and inclusive process based on well-researched analysis and wide consultations with stakeholders which included Government Ministries, Public Sector Implementing Agencies, Private Sector, Exporters, Research Bodies, Consumer Representatives and Civil Society. The key objective is to ensure a consistent and stable policy environment within which the private sector and consumers can operate effectively and with certainty.

23.               The fundamental principle underlying the Trade Policy is that the private sector is the engine of growth, with Government providing a trade enabling environment to actively stimulate private sector initiatives. The policy prescriptions emanate from seven (7) thematic areas that form the basis of the document. The thematic areas and the issues they cover are as follows:

(i)        International Trade: This relates to multilateral trade issues (participation in the WTO); sub-     regional integration (ECOWAS); Economic Partnership Agreement (EPA) with the EU;    Wider African Integration; Bilateral Trade Agreements; and Preferential Market Access.

(ii)       Import-Export Regime: This deals with Tariff Measures & Non-Tariff Measures; Rules of    Origin; Quotas and Tariff Quotas; Export Controls; and Import and Export Incentives.

(iii)       Trade Facilitation: This covers Customs Clearance; Airport and Port Services; Transit     Trade; TBT and SPS measures; and Export Finance.

(iv)      Enhancing Production Capacity: This addresses issues relating to Investment Finance,    Production Inputs and Access to Land; Production Infrastructure; Productivity Improvement;        Trade Support Services; and Sectoral Development; Agro-processing; and Information & Communication Technology (ICT).

(v)       Domestic Trade and Distribution: This considers issues of Domestic Pricing; Encouraging     Domestic Trade; Credit for Trade; Trade Infrastructure; and Promotion of Locally Manufactured Goods

(vi)      Consumer Protection and Fair Trade: This deals with issues of Health and Safety of     Consumers; Economic Interest of Consumers; Access to Adequate Information; Consumption        and Environment; Consumer Representation; and Competition Policy and Government   Procurement.

(vii)      Intellectual Property Rights: This covers Protection of Intellectual Property Rights and   Technology Transfer.

III.             THE TRADE SECTOR SUPPORT PROGRAMME

24.               The Trade Sector Support Programme (TSSP) is a five-year (2006-2010) Strategic Plan designed to implement the policy prescriptions in the Ghana National Trade Policy. The objectives of the TSSP are to increase Ghana's competitiveness in international and domestic markets and improve the legal and regulatory environment for business and consumers.

25.               The TSSP consists of 27 projects which were couched from the thematic areas of the Trade Policy. Some of the key objectives the programme seeks to achieve are to:

-                    Improve structures for international trade negotiations as well as the formulation and implementation of trade negotiation strategies;

-                    Create a fair and transparent import-export regime;

-                    Facilitate trade;

-                    Enhance production capacity for domestic and export markets;

-                    Increase domestic trade and improve distribution;

-                    Strengthen standards Institutions to ensure the protection of health and safety of consumers and also promote the quality of exports;

-                    Establish and maintain a transparent and effective competition regime as well as a government procurement law that promotes efficiency and cost effectiveness in government procurement;

-                    Promote consumer protection and fair trade; and

-                    Protect intellectual property rights.

26.               The projects and activities being executed under the TSSP are intended to promote Ghana's accelerated growth which is underpinned by two parallel strategies of:

(i)        an export-led growth;  and

(ii)      domestic market-oriented industrialization based on import competition.

IV.              GHANA'S INTERNATIONAL TRADE RELATIONS

(1)               The Multilateral Trading System

27.               Ghana is a firm believer in the tenets of the Multilateral Trading System (MTS) and fully committed to its principles. This is why it joined the General Agreement on Tariffs and Trade (GATT) in October 1957 after attaining independence in March 1957 and became a founding member of the World Trade Organisation (WTO) in 1995. However, because of supply-side constraints Ghana has not been able to substantially take advantage of the market access opportunities offered by the Multilateral Trading System (MTS).

28.               It is expected that the new national Trade Policy and the Trade Sector Support Programme (TSSP) will enable it address these supply-side constraints. In this connection, the Aid-for-Trade Initiative couldn't have come at a more opportune moment. It is the anticipation of Ghana, therefore, that Aid-for-Trade will soon be operationalized.

29.               Ghana also believes that true development-oriented outcomes of the Doha Round would go a long way towards achieving its objective of enhancing its competitive supply capacity and eventual integration into the global economy.

30.               Following from the above, Ghana's expectations from the on-going Doha Development Agenda include the following:

(i)        Non-Agricultural Market Access (NAMA): Currently Ghana has bound only 1.2% of its   industrial tariffs. This was done in the Uruguay Round. In the on-going round, Ghana is,   therefore, categorized as a Paragraph 6 country for having bound less that 35% of its      industrial tariffs. Ghana is prepared to increase its tariff binding to assure business people and   investors of the stability, security, certainty and predictability of its business environment.       Since Ghana depends heavily on customs duties as a source of government revenue for   development, it would require some amount of policy space for revenue purposes and also to     protect its infant industries for rapid industrialisation and diversification of its industrial base.

(ii)      Agriculture: In the Uruguay Round Ghana bound all its agricultural tariffs. About 99% of its   agricultural tariffs were bound at a ceiling level of 99% to be effective from 2004. Lower bound rates of 40% and 50% were set for a few agricultural products to apply from 1995.      However, Ghana maintains a standard applied rate of 20% on all agricultural products. Ghana        does not maintain any export subsidies nor does it maintain any trade-distorting domestic    support. However, Ghana is not immune from the deleterious effects of export subsidies and   trade-distorting domestic support of some WTO Members. Against this backdrop, the   elimination of export subsidies and substantial reduction in domestic support in the Doha    Round are a priority to Ghana. Other areas of the agriculture negotiations of special interest to     Ghana include the reduction or elimination of tariff peaks and tariff escalation on products of        export interest to Ghana, the self designation of Special Products by developing countries to   be treated flexibly in the negotiations, and a Special Safeguard Mechanism (SSM) to deal        with import surges. Preference erosion is also a matter of concern to Ghana. It is Ghana's        expectation that negotiations on this issue would be concluded in a manner that would give    true meaning to the negotiation as a development round.

(iii)     Rules: As an ACP country engaged in the negotiation of Economic Partnership Agreement      (EPA) with the EU compatible with Article XXIV of GATT, 1994, Ghana has profound      interest in the amendment of Article XXIV to introduce into it flexibilities in favour of      developing countries concluding Free Trade Agreements (FTA) with developed countries.        Ghana, therefore, urges the Group on Rules to seriously and expeditiously address the       proposal submitted by the ACP countries in document TN/RL/W/155 dated 28 April 2004.

(iv)    Services: In the Uruguay Round negotiations on services Ghana made commitments in basic     telecommunications services; financial services (banking and insurance); transport services        (maritime transport); educational services (secondary and specialist); construction and related        engineering services; and tourism and travel-related services.

            These areas were carefully selected because of the desire of the government to attract       investments as well as technological innovations into the sectors to facilitate their      development. The objective was to allow suppliers of these services to compete more    effectively and lower costs to consumers as well as to enable efficient development of the             other sectors of the economy which require those services as inputs.

            Ghana has prepared its draft offers for the current negotiations in response to requests        submitted by some WTO Members, but is yet to table these offers. In preparing these offers,      as in the past, consideration was given more to those services whose efficient delivery or   supply could contribute to the efficient operation of other sectors of the economy. The offers   are mostly improvements on the Uruguay Round offers, reflecting the more liberalized environment. Ghana's primary objective in the services sector is to build and strengthen its    domestic supply capacity, efficiency and competitiveness to enable it take better advantage of   the market access opportunities in sectors and modes in which it has supply capacity.

            Ghana expects its developed country partners to open up sectors and modes of supply of     export interest to developing countries, particularly mode 4. Developed country members'       offers should take cognisance of Article IV paragraph 1 of GATS. In the negotiations Ghana     seeks the maintenance of the architecture of the GATS intact. Ghana, like many other African      countries, also favours the maintenance of the “positive list” “bottom up” approach which enables it to select the sectors and sub-sectors and modes of supply of interest to it.

V.                 REGIONAL INTEGRATION

(1)               Economic Community of West African states (ECOWAS)

31.               Ghana attaches great importance to regional economic cooperation and integration. Ghana actively participates in ECOWAS activities at all levels, including the Conference of Heads of State and Government, Council of Ministers, Senior Officials and the Community Parliament, among others.

32.               With regard to the implementation of ECOWAS protocols, integration programmes and activities in the area of trade Ghana has taken actions on the following:

-                    Free Movement Of Persons: Ghana has abolished entry visas and permits for ECOWAS nationals, adopted the ECOWAS travel certificate and implementing the ECOWAS Brown Card scheme.

-                    Free Movement Of Goods: In line with the harmonization of customs documents by ECOWAS Member States Ghana has adopted the ECOWAS certificate of origin, customs nomenclature (HS) and the customs declaration form. Ghana is charging the Community levy of 0.5% on imported goods from countries outside the region. Ghana is also fully implementing the ECOWAS Trade Liberalization Scheme (ETLS) under which unprocessed goods from the region enter Ghana duty-free. However, industrial products must satisfy ECOWAS rules of origin and other certification conditions before being eligible for ETLS benefits.  

-                    Common External Tariff: The non-UEMOA member countries of ECOWAS are committed to the adoption of the UEMOA Common External Tariff (CET) by 31 December 2007 for the creation of the ECOWAS Customs Union. Ghana has the same tariff structure as UEMOA (i.e. 0%, 5%, 10% and 20%) with the differences being in some of the products on which they fall. Ghana has submitted to the ECOWAS Commission its final exception list for the ECOWAS Common External Tariff (CET). This is a list of tariffs Ghana wants to maintain. Negotiations are currently on-going between Member States in order to arrive at a harmonized CET by 31 December 2007.

(2)               Economic Partnership Agreement (EPA) With The EU

33.               Ghana, together with other West African countries, is negotiating a WTO-compatible Economic Partnership Agreement (EPA) with the European Union (EU) to replace the existing non-reciprocal Cotonou preferential trade regime under which about 97% of the exports of the ACP countries, including Ghana, enter the EU duty-free. The current regime is being implemented under a WTO waiver which expires on 31 December 2007. Under the new regime, West Africa region and the other five ACP regions negotiating EPAs with the EU are expected to also open their markets progressively in an asymmetrical manner to EU exports. This will be accompanied by EU-supported measures to accelerate West Africa's integration processes, upgrade its industries and build its productive capacity and competitiveness. This is to enable West Africa to take full advantage of market access opportunities offered by the EU and to integrate into the global economy. The negotiations are expected to be concluded by 31 December 2007. However, it has been acknowledged by both sides that this is not possible given the outstanding work which remains to be accomplished by West Africa. West Africa and the European Commission (EC), which is negotiating on behalf of the EU, are therefore looking for an interim arrangement that could be put in place to ensure that trade is not disrupted when the waiver expires on 31 December 2007 so that the negotiations could continue until both sides agree on a true development-oriented EPA that will serve the best interests of West Africa.

VI.              BILATERAL TRADE

34.               Ghana has signed bilateral agreements with a number of countries with the objective of taking advantage of opportunities offered in key strategic markets, fostering business cooperation and technology transfer and encouraging Foreign Direct Investment (FDI). However, should the ECOWAS Customs Union come into existence these agreements would have to be submitted to the ECOWAS Commission for acceptance or rejection by the Union.

Preferential Arrangements: Ghana benefits from the Generalized System of Preferences (GSP) offered by industrialised countries other than the EU and the United States of America. The United States offers a number of African countries, including Ghana, special access to its market under the African Growth and Opportunity Act (AGOA). Under AGOA over six thousand products from the beneficiary countries enter the USA market duty-free and quota-free. Apparel made from US fabric, yarn or thread also enter the US market duty-free and quota-free.

VII.           TRADE-RELATED TECHNICAL ASSISTANCE

35.               Ghana very much appreciates the technical assistance it has been receiving from the WTO under the Doha Development Agenda Global Trust Fund. A number of trade officers have benefited from the Geneva-based and Regional Trade Policy courses as well as the national and regional workshops and seminars. The on-line courses have also been beneficial. These have contributed immensely to increased awareness and the understanding of the WTO Agreements and, thus, the capacity building of these officers. However, the knowledge and understanding of the WTO Agreements and the acquisition of negotiating skills alone do not translate into enabling the developing countries overcome their supply-side constraints to be able to take advantage of the market access opportunities offered by the multilateral trading system. There is, therefore, the need to assist developing countries like Ghana without competitive supply capacity to address their supply-side constraints through, in particular, the Aid-for-Trade Initiative. In this respect Ghana would like to its trading partners to support its five-year Trade Sector Support Programme (TSSP). 

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