2011 (US$5.0 billion). As Ghana’s trade channels are shifting towards China, the Bank of Ghana could re-visit the currency composition of its reserves to provide better hedging against exposure to new risks. Finally, Ghana’s debt management strategy increasingly needs to factor risks stemming from larger non concessional borrowing and PPP-related contingent liabilities.

Protecting the economy against real exchange rate pressures and the deterioration of the tradable sector’s competitiveness is another challenge. While real exchange appreciation is almost unavoidable, it needs to be accompanied with productivity gains, in the tradable sector in particular, for diversification and sustainable development beyond the mineral boom. This renders the public investment programs central to the success of the overall development strategy, and calls in particular for strengthening the public investment management framework. While project selection, procurement and implementation practices are considered functional, Ghana needs to develop its capacity to appraise projects (including through independent reviews), and evaluate them when completed. Also, coordination between debt management, project analysis and budgeting functions needs to be strengthened to better assess the budgetary and debt implications of public investment programs. Besides, a number of bottlenecks need to be removed in the non-tradable sectors, land and finance in particular, to avoid the unnecessary development of rents and asset bubbles.

Ghana has been pursuing important public financial management reforms to improve the efficient use of public resources and to enhance its local procurement and planning capacity. Notable among the reforms include Ghana Integrated Financial Management Information System (GIFMIS), Programme Based Budgeting (PBB), Wage and Payroll Management. These reforms are expected to resolve the current weakness in budget management and better align government expenditure to the Ghana Shared Growth and Development Agenda (GSGDA) 2010-13. For instance, the GFMIS will serve as the official system of record to meet the government’s budget, financial accounting and reporting, disbursements, internal control, and auditing requirements. In 2012, government intends to roll out the modules of the system to 23 Ministries in Accra and 10 regional capitals. Meanwhile, the PBB which was piloted in 2 Ministries (Tourism and Communication) will be rolled out to cover additional 5 Ministries, including Education, Health and Agriculture.

# **Political Absorptive Capacity**

Ghana’s ample political business cycles underline the high risk of political capture of mineral rents. There is now ample empirical evidence to suggest that, in pre-election years, the fiscal budget constraint has been relaxed by the Government of Ghana to meet myopic expectations from potential swing voters.<sup>18</sup> Since the resumption of democracy in 1992, there has been an exceptionally large fiscal deficit nearly each election year, followed by a painful fiscal adjustment afterwards, with those in 1992, 1996, and 2008 proving especially destabilizing. On average, deficit was 1.5 percentage point of GDP higher in the year preceding elections. Fiscal instability has pushed up inflation and the real interest rate, and has reduced private investment below its potential. It has also affected the quality and sustainability of many public investment projects, often hastened before elections (without proper budgeting, and expedited procurement), to be interrupted afterwards. As the consequence of selffulfilling expectations from foreign investors fearing macroeconomic instability in 2012, the rapid depreciation of the Ghana cedi in early 2012 could be the early sign of a repeated history.

The 2012 election year is no exception, but Ghana might be better equipped this year to contain demand pressures. As observed in previous election years, labor unions might opt for strike actions to

> 18 See Government of Ghana (2011), Banful (2011), and Block (1999).

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