Background

Well-endowed with natural resources, Ghana’s economy revolves around gold mining, cocoa farming, logging and oil production. Illegal logging and unsustainable use of ore and timber have led to major environmental challenges, specifically deforestation and desertification. These activities have caused the loss of 1.9 million hectares – equivalent to 26 per cent of the country’s forest cover – in fifteen years.

Overall Fiscal Profile

In some respects, Ghana has had good economic performance. GDP growth averaged 5.2% per year between 2000 and 2009, higher than the Sub-Saharan Africa average, and is projected to maintain this level, at 5.5% in 2013. However, as a result of the global financial crisis, the fuel and food crises of 2007-2008, and underlying structural weaknesses in the economy, Ghana faces a persistent fiscal deficit and a low savings rate. The fiscal deficit stood at 11.8% of GDP in 2011 and has contributed to the rapid growth of domestic credit, the crowding out of private sector activity by high interest rates, a chronically high rate of inflation and general upward pressure on the real exchange rate. Inflation has been chronically high, averaging more than 20% a year between 1990 and 2008, although it has declined slightly to 14.5% as of March 2014. Moreover, the public sector wage is rather large, taking up 50 percent of total government revenue.

Policy and Legal Framework for the Green Economy

Protecting the environment is a clear policy objective of the Government of Ghana and as such it has been featured in several national development plans. In “Ghana’s Shared Growth and Development Agenda: 2010-2013”, the government emphasized that sound management of natural resources and respect for the environment were key to attaining the country’s development goals. Additionally, the Medium Term National Development Policy Framework integrates components of the Green Economy. The main target of the policy framework is to enhance per capita income to at least US $3000 by 2020, while simultaneously achieving the MDGs. The Framework also highlights future commitment to promoting environmental issues in policy design. For instance, it sets out to introduce new taxes and levies to establish the right prices for natural and environmental capital, thus generating more government revenue while providing the right incentives for reducing environmental degradation.

Other important strategies related to the Green Economy include the National Biosafety Framework, the National Program on Sustainable Consumption and Production as well as the Climate Change Adaptation and Development Strategy. A National Climate Change Policy Framework (NCCPF) has also been developed to ensure a climate-resilient and climate-compatible economy while achieving sustainable development and equitable low-carbon economic growth for Ghana.

Fiscal Measures for Green Economy

With a transition to a green economy high on the priority list, Ghana has implemented a number of environmental fiscal reforms. One reform involved the use of fiscal incentives in the timber industry. The fiscal regime in the forestry sector has three components: 1) stumpage fees charged per volume of wood extracted; 2) export taxes; and 3) timber rights fees (TRFs).  TRFs were introduced in 2003 to better collect other taxes and ensure transparency in the allocation of logging rights. Though in practice, these taxing mechanisms should provide effective instruments for conservation and revenue generation, in practice revenue collection is below expectation. Moderate improvement in enforcement of a sustainable level of logging could imply revenue gains of US$ 15-25 million.

Fossil Fuel Subsidy Reform

The past decade has been marked by attempts to deregulate fuel prices in Ghana. In 2000, a change in government saw a renewed surge in petroleum taxes, which was then reversed in 2005 while further cuts were announced in 2008. In 2003, a commitment to cost recovery pricing with a 90% increase in pump price was made, which was then abandoned in 2005 as a result of social unrest. At this time, Ghana worked to successfully reform petroleum subsidies after realizing that such subsidies disproportionately benefitted higher-income groups, instead of benefitting the poor.  The money saved in this initial reform went towards providing free education, improving healthcare in the poorest areas and funding a rural electrification scheme.. This has enabled Ghana to 1) eliminate fees for primary and junior secondary schools; 2) allocate extra funds for primary health care in the poorest areas; 3) expand the provision of mass urban transport; and 4) increase funds for a rural electrification scheme. These policies redirect government revenues to where they are needed most.

Despite these initial reforms, subsidies still persisted for various fuels including petrol, diesel, kerosene, and LPG . As of 2012, fuel and utility subsidies were 72.1% higher than the budget target of 470.0 million Ghanaian cedi (US$ 235 million), contributing to an overall fiscal deficit of 11.8% in 2012.

In response, the government took additional steps to improve fossil fuel subsidies. Automatic price adjustment mechanisms were reintroduced in 2013. As a result, the prices of petrol, kerosene, diesel marine diesel, RFO and LPG  rose 15% to 50%  until the price reached the market level in September 2013. To mitigate the impacts of rising prices, compensation mechanisms targeting vulnerable groups were put into place. For example, Ghana implemented a cash transfer programme (LEAP) to compensate 150,000 households in 2014. Another mitigation effort was an increase in the minimum wage by 17 per cent. Additionally, a subsidy on public transport helped to keep public transport affordable for commuters. The reform led to a fiscal surplus to channel into other economic and social programmes. Its full impacts remain to be seen, but the reform is expected toimprove energy efficiency, reduce carbon emissions, as well as cushion the fiscal budget used for utility agencies.

Related documents:

GIZ. Environmental Fiscal Reform. A practice-orientated training for policy makers, administration officials, consultants and NGO representatives. Retrieved from: http://www.greengrowthknowledge.org/sites/default/files/Parallel_session_1c_DRC_Klarer_part1.pdf

GIZ, 2013. Green Economy in Sub-Saharan Africa. Lessons from Benin, Ethiopia, Ghana, Namibia and Nigeria Retrieved from: http://www.greengrowthknowledge.org/sites/default/files/downloads/resource/green_economy_in_sub_saharan_africa_GIZ.pdf

Government of Ghana. Ghana goes for green growth. Retrieved from: http://cdkn.org/wp-content/uploads/2011/04/NCCPF-Summary-FINAL.pdf

Government of Ghana (2010) Ghana shared Growth and Development Agenda: 2010-2013. Download here.

 IMF, 2013. Energy Subsidy Reform in Sub-Saharan Africa. Retrieved from: https://www.imf.org/external/pubs/ft/dp/2013/afr1302.pdf

Institute of Development Studies. Ghana Report. Taxation and Development in Ghana. Finance, Equity, Accountability. Retrieved from: http://www.taxjustice.net/cms/upload/pdf/Ghana_0906_Report_widescreen.pdf

Ministry of Environment Science and Technology (2012). National Assessment Report on Achievement of Sustainable Development Goals and Targets for Rio+20 Conference. Retrieved from: http://sustainabledevelopment.un.org/content/documents/1016ghananationalreport.pdf

United Nations Country Team (2005) United Nations Development Assistance Framework (UNDAF) for Ghana, 2006-2010.Download here.

UNEP and UNDP. Government of Ghana National Climate Change Adaptation Strategy. Retrieved from: http://prod-http-80-800498448.us-east-1.elb.amazonaws.com/w/images/2/29/GhanaGreen.pdf

UNEP (2014) Fiscal Policy Scoping Study – Ghana. Download here

UNEP (2014) Summary of Fiscal Policy Assessment – Ghana. Download here

UNEP (2015) Fiscal Policy Assessment – Ghana. Download here