ABSTRACT
This study examines Ghana’s foreign aid utilization for the period 1982 to 2000 under the PNDC and NDC administrations led by Flt Lt. J.J. Rawlings in relation to economic growth and development, based on the dependency theory. The study employs primary and secondary data in examining aid in Ghana. Ghana, in the 1980s, became one of the firm economic reformers in Sub Saharan Africa. From a declined economy, Ghana recovered with improved growth under the Provisional National Defense Council (PNDC). This exceptional record in Sub-Saharan Africa came along with increased foreign aid receipts from the donor community. Aid utilization was executed by high level of technocratic policymakers under one political leadership. However, the slow pace of economic development in the 1990s coincided with calls for strong institutional capacity and increased democratization. Under the National Democratic Congress (NDC), economic growth was unimpressive. Utilization of aid under this period recorded relatively lower gains as ownership of programmes waned to a considerable degree.
CHAPTER ONE INTRODUCTION
Background to the Study
The core mandate of foreign aid to developing countries has been the promotion of economic development, generally evaluated by its impact on economic growth. Yet, after years of increasing aid inflows to these countries, numerous empirical study on the relationship between aid and growth, shows that the effectiveness of foreign aid in attaining its core mandate still remains contentious. Most aid recipient economies view foreign assistance as a cardinal factor in their development strategies, yet, development remains questionable among analysts.
In the same vein, the level and trends of foreign aid have become issues of concern to donors, with analysts perceiving signs of “donor fatigue”. A notable number of empirical investigations including the works of Van der Walle and Johnston (1996), Burnside and Dollar (1998), World Bank (1998), Dollar and Svenssons (1997), among others, have explored the relationship between foreign aid and development by countries, redirecting their focus to how to enhance aid effectiveness and the role of donors in attaining their prime objective as basis for policy formulation, but the recipients’ performances still generates mixed results. Kosack (2003) and McGillivray et al (2006) re-address the discussion in relation to governance, thereby stressing that aid positively impacts on development under democratic governments.
In the case of Ghana, the experience has been different. In 1983, the effort of the Provisional National Defense Council (PNDC), a military regime, in soliciting foreign assistance from the Bretton Woods institutions under the Structural Adjustment Programmes (SAPs), locally launched as Economic Recovery Programme (ERP), resulted in impressive
macroeconomic indicators in the early years of the adjustment period (Hutchful, 1997). From 1992 to 2000, Ghana’s economy under the National Democratic Congress (NDC), a democratically elected government, witnessed undue stress on macro-economic management with significant fall in its operations, widening macro-economic imbalances, regardless of excessive capital inflow by donor countries to the civilian government. The country was then faced with an overwhelming external debt, amidst allegations of corruption activities and financial misappropriation in the public sector (Hutchful, 1997). Ghana’s experience is in line with the assertion by Bräutigam and Knack (2004) that weak institutions and lack of stringent accountability measures, among others, are the reasons why developing economies are unable to promote growth and development through foreign aid. It is against this background that this study examines the utilization of foreign aid during the PNDC and the NDC governments.
Statement of the Research Problem
Existing literature holds that Ghana, under the PNDC, was a key recipient of exponential aid inflows from the international donor community, aimed at supporting developmental activities (Boafo-Arthur, 1989). Ghana’s utilization of aid made her a “star pupil” of the Bretton Woods institutions in the 1980s for firm economic reforms as considerable economic growth was recorded in various sectors of the economy (Toye, 1991). However, the economy, in the 1990s recorded less impressive economic returns with accumulated debts (Boafo-Arthur, 1999), consequently, being declared as a highly indebted poor country in 2000 (Aryeetey, 2000). These mixed responses of aid in Ghana under the period of study were experienced during a military (PNDC) and a democratic (NDC) governments under one political leadership. Could the mixed responses regarding growth and development be attributed to the political leadership, accountability processes and ownership of aid programmes at the time? It is against this backdrop that the study demonstrates the performance
of foreign aid in relation to economic development under the military government (1982-1992) as compared to the democratic government (1993-2000) in their respective political environments, thus, examining the validity of existing sources.
Research Questions
- To what extent did political leadership under the PNDC and the NDC administrations contribute to Ghana’s economic growth through the utilization of foreign aid?
- What were the processes of accountability for aid programmes under the PNDC and the NDC administrations?
- What was the level of Ghana’s ownership of aid programmes under the PNDC and the NDC administrations?
Research Objectives
The objectives of the study are:
- To establish how political leadership under the PNDC and NDC administrations contributed to Ghana’s economic growth through the utilization of foreign aid;
- To examine the processes of accountability for aid programmes under the PNDC and NDC administrations;
- To investigate the level of ownership of aid programmes under the PNDC and NDC administrations.
Scope of the Study
The study is limited to the period 1982 to 2000. The choice of the study period shows a unique period in the history in Ghana where two (2) different systems of government i.e autocracy and democracy were administered under one political leader. It therefore brings to fore the need to examine foreign aid utilization under these two (2) dispensations in terms of their respective approaches to policies, though receiving aid from the same donor community.
Rationale of the Research
The donor community decreased aid flows to Ghana in 1992 following the democratic elections, an episode attributed to the fiscal slippage in the reforms programmes. This was a period where foreign aid attached to specific structural reforms were channelled to the increment of civil servants wages, which saw the World Bank consequently suspending disbursements of funds between November, 1992 and mid-1993. Again, under the NDC in 1996, there was another fiscal slippage which led to the temporal disruption of the IMF programme under the Extended Structural Adjustment Facility (ESAF). Investigating extensively into the relationship between aid utilization and political environments is important for understanding how aid inflows under specific types of governments are used in the country to impact economic development, thus providing empirical guide for policy formulation.
Hypothesis
H1: Foreign aid utilization under the PNDC government yielded more positive economic returns as compared to the NDC government.
H2: Foreign aid utilization under the NDC government yielded less positive returns as compared to the PNDC government.
