IDA S NON-CONCESSIONAL BORROWING POLICY: UPDATE OF THE CASE OF GHANA

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized IDA S NON-CONCESSIONAL BORROWING POLICY: UPDATE OF THE CASE OF GHANA I.INTRODUCTION 1. The purpose o f this note i s to set out the relevant factors related to Ghana s non-concessional borrowing in 2008, and to inform IDA s response based on country and loan-specific factors outlined in the Board papers on IDA s policy on non-concessional borrowing (IDA 2006, p. 24, and I D A 2008, p.16-17). The policy on non-concessional borrowing by grant-eligible and MDRI-recipient countries was requested by IDA deputies in the course o f the I D A 1 4 Replenishment discussions and was adopted by the Board in July An update o n the implementation o f the IDA 2006 Non-Concessional Borrowing Policy (NCBP) paper was discussed at the Board in June The objectives o f these policy papers were to provide IDA with a framework to deal with situations in which non-concessional loans risked undoing the benefits o f IDA grants or debt relief, as well as to outline actions aimed at broadening the understanding o f the N C B P policy.2 2. IDA s non-concessional borrowing (NCB) policy was developed to address the risk that non-concessional loans to grant-eligible and post-mdri countries may lead to a rapid re-accumulation o f debt and thus undermine borrowers debt sustainability prospects. The policy i s applicable to Ghana as a post-mdri country as o f FY07.3 While debt r e l i e f increases the apparent borrowing space and financing options available to post-mdri countries, it also poses a challenge for borrowers to manage that borrowing space effectively to increase growth and to meet poverty reduction targets. The policy i s based o n a two-pronged approach aimed at both creditors and borrowers. The first prong aims to enhance creditor coordination around an agreed framework o n borrowers debt sustainability, while the second prong i s aimed at In this context, Ghana s recent non-concessional discouraging over-borrowing. borrowing needs to be assessed by IDA as to i t s impact o n the country s repayment capacity, taking into account country-specific and loan-specific factors. 1 See IDA (2006). IDA Countries and Non-Concessional Debt: Dealing with the Free-Rider Problem in IDA14 Grant-Recipient and Post-MDRI Countries, IDAIR , July, and IDA (2008) IDA s Nonconcessional Borrowing Policy: Review and Update. IDA/R , June. T h e 2008 IDA paper provides an update on efforts to encourage other creditors to incorporate debt sustainability considerations and to incorporate the debt sustainability framework (DSF) into their lending decisions. These include extensive outreach activities involving the Export Credit Group o f the OECD, the Berne Union (of export credit insurers), all multilateral creditors that have also been involved in the HIPC Initiative, commercial creditors, and emerging market bilateral creditors. 3 For the purposes o f applying this policy, a concessionality benchmark has been set at a 35 percent minimum grant element. The concessionality benchmark may be higher in cases where there i s an IMF arrangement in place. These estimates apply the joint IMF and World Bank methodology for calculating concessionality using Commercial Interest Reference Rates (CIRRs) as discount rates.

2 3. During the course of 2008 the Government of Ghana contracted around US$617 million equivalent in new non-concessional ~redits.4 ~ The average interest rate on these non-concessional credits is estimated at 5.0 percent (assuming a 12 month Euribor of 1.4 percent), with average maturity and grace periods of 9 and 2 years, respectively, yielding a 2.5 percent grant element.6 While there is some evidence of economic merit to Ghana s non-concessional borrowing, the country s increased access to non-concessional financing warrants continuous monitoring of the impact of this borrowing on the country s repayment capacity, taking into account country-specific and loan-specific factors. Sector-specific factors that explain the decision to borrow nonconcessionally include the need to complete ongoing public investment projects in key sectors, notably in the energy and water and sanitation sectors, and, in doing so, make progress toward achieving the MDGs. These investment projects have not been subject to rates of return calculations, however, and it is unclear whether they will generate the revenue needed to service the contractual debt obligations. Country-specific factors indicate that, while Ghana s policies and institutions are adequate for a low-income country, the country s debt sustainability indicators remain in the moderate risk of debt distress category. This note is being circulated to the Board in fulfillment of management s commitment to inform Executive Directors of IDA s response to Ghana s non-concessional borrowing. 4. The primary purpose of IDA s engagement under the Non-concessional Borrowing Policy is to minimize the risks of a rapid re-accumulation of unsustainable debt while enabling the country to gradually access additional sources of financing where this is appropriate. The country s gradual access of additional sources of financing cannot be entirely de-linked from development in international financial markets, however, and Ghana s access to non-concessional borrowing reflects these developments. During periods of expansion in international financial markets, the country has been able to access these markets to help finance its development program, and, now that this access has become more limited, new non-concessional borrowing is expected to stay at lower, more prudent levels. 5. The note is organized as follows: Section I1 sets out the information currently available on the terms of the non-concessional borrowing and its expected impact on the country s debt sustainability, which informs the proposed response to this new nonconcessional borrowing. Section I11 reviews the available options. Section IV outlines the Bank s proposed response and summarizes its rationale. As recorded in the World Bank debt reporting system. These figures exclude around US$95 million of integrated financing arrangements, which combine credits from commercial banks with grants from development agencies to achieve the benchmarked 35 percent grant element. It also excludes borrowing by State-Owned Enterprises (SOEs). The full list of projects in the budget financed through non-concessional funds and their respective creditors is provided in Table 1 below. The minimum grant element required under the NCBP is 35 percent or higher -a threshold also established in the IMF s ongoing PRGF arrangement. OECD export credit agencies follow a similar threshold. -2-

3 11. RATIONALE AND IMPACT OF THE NEW BORROWING 6. Ghana s rationale for the new borrowing on non-concessional terms. The main factors driving the decision to borrow on a non-concessional basis in 2008 were the terms being offered by the banks, as well as the need to complete ongoing public investment projects in key sectors, notably in the energy and water and sanitation sectors, and, in doing so, make progress toward achieving the MDGs (Table 1). Also, important was the fact that about three-quarters of these credits were sought in the context of ongoing development projects already supported by multilateral and bilateral development cooperation programs. For instance, the largest of the projects supported by non-concessional credits, namely the fourth stage of the Self Help Electrification Program (SHEP IV),7 has over the years received support from the European Union, the Japanese government, and IDA. This fourth installment of the SHEP project received a US$350 million credit from the USA Eximbank, with a 4.5 percent interest rate, a 16 year maturity period and 3 years grace. Another project receiving non-concessional funds is the Korle Lagoon Ecological Restoration, which is also being supported by the Kuwait Fund for Arab Economic Development, the Arab Bank for Economic Development in Africa and the OPEC Fund for International Development.8 This project received a Euro 71 million loan from the Belgium KBC bank, carrying a 4.15 percent interest rate, with an 11 year maturity period and 3 years grace. Lastly, the Electricity Company of Ghana (ECG) expansion and loss reduction projects are being financed through a loan from the French Calyon bank, with an average interest rate of 5.1 percent, and average maturity and grace periods of 10.5 and 2 years, respectively. These last two projects aim at complementing the ongoing Ghana Energy Development Access Project that is being SHEP is a component of the National Electrification Scheme (NES) under which communities within 20 kilometres of an existing medium voltage network and meeting other criteria are eligible to be linked to the national grid. Since its inception in 1989, the percentage of Ghanaians with access to electricity has gone up from 15 to about 60 percent. The SHEP aims at consolidating and improving existing energy supply, increasing access of poor communities to modern energy services, and at stimulating economic growth and development, particularly in rural communities, through the efficient use of energy. Nevertheless, since financial viability cannot be expected in the short run from rural electrification projects because rural electrification is a costly investments, leading to recurrent operating deficits for the utilities, subsidies are justified in the face of expected high economichocial returns. In the medium to long run increasing access to electricity (to rural areas and to poorer customers) implies that tariffs for other users should be better aligned with long run marginal costs. Reforms in the direction of better aligning electricity tariffs to long run marginal costs are being encouraged through IDA S ongoing budget support operation (Economic Governance and Poverty Reduction Credit, EGPRC). 8 This project consists of dredging about 1.5 million cubic meters of silted material from the lagoon, channel improvement of Odaw river and South Kaneshie drain terminal sections, solid waste disposal and landscaping of the periphery of the lagoon, the construction of dry weather diversion channels around the lagoon, pumping stations, a preliminary treatment plant, and a new pipe sea out-fall of 1.5 kilometers. Stage 4 of this project relates to the relocation of the Old Fadama settlement. The provision of improved living conditions to its inhabitants, including basic infrastructure and social services following an environmental impact assessment, potentially carries high social return. It is also expected to improve the long term sustainability of the Korle Lagoon Ecological Restoration project. The number of beneficiaries is nonetheless uncertain, as is the financial viability given the absence of cost recovery mechanisms. -5-

4 supported by the Africa Development Bank (AfDB), the Swiss Government, the Global Environment Facility (GEF), the Africa Catalytic Growth Fund (ACGF), and IDA.9 7. What are the expected rates of return on these energy projects? The financial and economic rates of return for these power distribution projects were not available from Government. While the Bank team that reviewed the information provided by the Ghanaian Government was of the view that extending or complementing these projects initiated with concessional financial support (except for the purchase of medical equipment for the military hospital and the fisheries project) could potentially carry large development benefits, the information provided was not sufficient to support any firm conclusions. Moving forward, the government needs to consider actions to increase its capacity to carryout project evaluations. 8. The results of the 2009 DSA." The joint IDA-IMF DSA of July 7, 2009, assessed Ghana as remaining at a moderate risk of debt distress category due to the recent rapid re-accumulation of domestic and external public debt. There are important differences between the baselines for the 2009 joint DSA and the 2008 joint DSA, however. First, the baseline for the 2009 DSA includes the projected impact of oil extraction on the growth rates for real GDP, exports and fiscal revenues, which in the 2008 joint DSA was considered only under an alternative scenario. Assuming that the Ghanaian government is successful in implementing its strong fiscal adjustment over the next three years, the NPV of net public and publicly guaranteed (PPG) debt is expected to stabilize at just over 50 percent of GDP over the medium-term ( ), which is however higher than the 35 percent debt-to-gdp ratio envisioned under the previous DSA." Second, the country's macroeconomic situation has deteriorated markedly between the two DSAs, with the widening of the fiscal and current account deficits This project involves the reduction of ECG's technical losses and the expansion of rural electrification. The former includes the addition of more sub-stations to ease the pressure and load on the existing ones, the construction of another bulk supply point, and the upgrading of existing lines to take heavier loads. The implementation of these projects also increases the demand on ECG's project implementation capacity, however, and highlights the need for greater coordination among the several agencies operating in this sector. The latter is important because these ECG expansion and loss reduction projects (I and 11) are part of ECG five year investment plan whose total estimated cost is US$ 991 million. The ECG investment program is also supported by an IDA project (GEDAP), which would improve and expand power supply in industrial, urban, and peri-urban areas, through the financing of 4 Primary Substations, 33 KV lines (aerial in Tema region, underground in Kumasi), 11 KV underground network, LV networks. It is expected to result in 600,000 additional customers for ECG and reduced distribution losses. ECG distribution losses are currently around 25 percent. A reduction of technical losses of 1.0 percent would generate an annual economic benefit of US$6 million. Since the power supply situation in Ghana is improving on the generation side due to additional thermal capacity and gas supply, removing the bottlenecks in the transmission and distribution networks is expected to provide high economic returns. The project should also be financially profitable for the utility as long as satisfactory tariff regulation is in place. IDA is supporting reforms aimed at achieving a satisfactory tariff regulation through its ongoing budget support operation (Economic Governance and Poverty Reduction Credit, EGPRC). lo IDA/SecM " While a precise strategy for utilizing Ghana's oil revenues is still being developed, the current understanding is that a portion of oil revenues during the initial years of oil extraction will be set aside as savings. When oil revenues begin to decline later in the projection period, these savings would partially ' offset Ghana's public liabilities. -4-

5 during this period. Between 2007 and 2008, the nominal PPG external debt ratio to GDP increased by 4.4 percentage points. DSA baseline projections for 2009 indicate that taking into account the erosion in the value of the Ghanaian currency over the last 12 months and lower real GDP growth projections, the rise of external PPG debt in 2009 will be US$1.2 billion in present value terms. The present value of PPG external debt to GDP ratio will rise by 10.2 percentage points, reaching 28.2% of GDP in This ratio is expected to stabilize after 2010, with an average of 3 1.4% during the period and a 30.6% average during the period. Third, because the 2009 DSA bridges the current non-oil exporting period ( ) and the oil exporting period ( ), the DSA itself indicates that in the case of Ghana, standardized stress tests potentially overstate DSA risks. The standardized stress tests for growth and export performance assume that outturns during fall short of the historical average by one standard deviation. This represents a dramatic revision to baseline projections for 2011, where growth and exports are expected to surge with the start of oil production (real GDP is expected to rise by 24 percent in 2011, while exports are projected to rise by 51 percent in dollar terms). Given the step-like profile of oil production and exports, with a one-off increase in 2011 followed by a broad stability for the next five years, these stress tests effectively eliminate the benefits of the oil sector from the DSA baseline. Moreover, the standardized stress tests magnify the contrast between these two periods, as they are based on an outcome worse than a scenario without oil by reducing the revenues from oil exports without reducing the imports that they would have financed. Thus, the DSA adjusted the standardized tests to reflect the arrival of oil in 2011 by retaining the oil-induced acceleration in real growth and exports starting in What are the non-concessional borrowing assumptions in the 2009 DSA? The 2009 DSA assumes a high-case level of non-concessional borrowing, averaging US$500 million during the period Even though these levels of nonconcessional borrowing are significantly less than levels of non-concessional borrowing assumed in the previous DSA, they are still higher than the US$ 300 million non-zero limit in nonconcessional borrowing included in the new PRGF arrangement with the IMF ( ). Under this PRGF arrangement, the government will provide to the IMF a semi-annual listing of the projects being considered for market-related foreign financing, with a first report provided at the time of the first review of the PRGF arrangement. On the basis of this listing of projects, the government would request that the limits under the PRGF arrangement imposed on contracting or guaranteeing new external nonconcessional debt be set so as to accommodate these projects. The government has already identified a potential need for debt guarantees during period of up to US$300 million to be provided to the Ghana National Petroleum Company (GNPC), with the view to facilitate its participation in the first phase of a program to exploit offshore gas deposits starting in Also, the level of nonconcessional borrowing envisioned in the DSA is higher than the Government s current borrowing plans, as it aims at ensuring that the DSA is resilient to higher borrowing outturns and at covering the risks that non-concessional borrowing will adversely affect the grant element of new IDA financing. A more conservative assumption regarding new non-concessional borrowing is consistent with the view that, as Ghana becomes more prosperous and moves to middle-income status, the structure of the country s external financing is likely to change. In particular, the assumption is that reduced grant and concessional financing would give way to borrowing at non-concessional terms, which is -5 -

6 typically at shorter maturity and higher cost. * Notwithstanding these assumptions, the shift to non-concessional funding would leave the nominal debt-to-gdp ratio largely unaffected (non-concessional funding simply replacing concessional financing), although it would increase the debt service ratios measured relative to exports and to government revenues. In itself, the signing of a PRGF agreement is a sign that the country authorities have chosen to reverse their highly expansionary fiscal policies of 2008 and to aim for fiscal consolidation. The PRGF document describes Ghana s deficit targets (9.4% of GDP in 2009,6% in 2010,4.5% in 2011) as appropriately ambitious. 10. These fiscal consolidation efforts are important because in 2008 Ghana s overall budget deficit increased to an estimated 14.5 percent, up from an already high 9.2 percent of GDP in The overall budget deficit to GDP ratio has since narrowed to 10.4 percent. This widening of the fiscal deficit has been triggered by a large increase of the wage bill, as well as an expansion of public investments and, more recently, additional interest rate payments to match the recent debt build up. The public sector wage bill now accounts for 10.4 percent of GDP, down from percent in 2008 but still higher the 7 percent of GDP reached at the beginning of this decade, despite the rapid real GDP growth rate achieved during this period. Similarly, public investments rose to over 15 percent of GDP in 2008, compared to 5.4 percent in 2009 and an average of around 10 percent of GDP for most of the decade. Meanwhile, interest payments on domestic debt, which had began declining in the aftermath of two rounds of external debt relief (HIPC and MDRI), began rising again, reaching just under 5 percent of GDP in 2009 and 3.9 percent in 2008, up by almost two-thirds over 2007 figures. 11. In the meantime, how has the country used the proceeds of the US$750 million Eurobond issued in September 2007? The Government reported having disbursed 80 percent of the proceeds of the Eurobond. The proceeds were allocated in the 2007 Supplementary budget primarily to support public investments in the energy sector, according to the following distribution: US$286 million for investments by the Volta River Authority (VU); US$134 million for investments by the Electricity Company of Ghana (ECG); US$54 million for the investment in the Bui Dam; US$31 million for the Government s equity investment in the West Africa Gas Pipeline (WAGP); and US$90 million for public investments in road infrastructure. The information provided by the Government of Ghana suggests that the proceeds from the Eurobond were used for productive investments, primarily in electricity generation and distribution. Even though budget financing is fungible, the selection appears to be consistent with earlier policy discussions with the Bank, as these two areas had already been identified in the 2007 Country Economic Memorandum (CEM) as warranting additional investments to sustain economic growth. 12. How is the government organized to ensure that future investments will yield high returns, and how is the Bank supporting these efforts? The Government of Ghana has established at the Ministry of Finance and Economic Planning a Project Finance Analysis (PFA) Unit with responsibility for analyzing, monitoring and l2 In the current DSA, the average maturity of non-concessional borrowing is 6 years and the assumed interest rate is 8 percent. -6-

7 evaluating new investment projects deemed eligible for Government support, especially large public investment projects seeking guarantees under public-private partnership arrangements. The work of this unit is still at very early stages and has focused on assisting the project sponsors leverage private sector financing by supporting them in setting up Public-Private Partnerships (PPPs) and Private Finance Initiatives (PFIs). The task of project evaluation is seen as the responsibility of the sponsoring agencies, especially State Owned Enterprises (e.g., Volta River Authority, Electricity Company of Ghana, Ghana Water Company), proposing large public investments. To support the current activities of the PFA Unit, IDA is assisting the Government of Ghana in marshaling the necessary advisory services on public-private infrastructure through a grant from the Public Private Infrastructure Advisory Facility (PPIAF). The purpose of the public-private infrastructure facility is to assist the country in mobilizing the needed financing for large infrastructure projects by increasing the country s capacity to promote and manage PPPs and by assessing the feasibility of establishing a Public Private Partnership (PPP) Center (PRC) in Accra. The support for the needed capacity building in project evaluation is still being agreed with the new administration and would entail hands-on training for both the Ministry of Finance and the sponsoring agencies. 13. How is IDA supporting Ghana in strengthening its external debt management capacity? A joint World Bank-IMF Medium Term Debt Management Strategy (MTDS) report was submitted to the Ghanaian authorities in June 2008, providing technical assistance, including tools and guidance, on designing and implementing an effective MTDS that ensures that the financing needs of the government are met at the lowest possible cost consistent with a prudent degree of risk and with maintaining debt sustainability. The MTDS mission highlighted the need to fully assess the implications for debt sustainability of additional commercial borrowing going forward, which is likely to be required given that concessional borrowing is expected to decline as the country s income level rises and is unlikely to be sufficient to meet Ghana s future financing needs.13 The mission also highlighted the need to link the MTDS to the authorities objective to develop the domestic financial system. In parallel, the Bank assessed the strengths and weaknesses of Ghana s debt management operations using the Debt Management Performance Assessment Tool (DeMPA). The DeMPA report concluded that debt management operations in Ghana were largely effective, but that improving the efficiency of operations should be a key aim going forward. A followup mission visited Accra in December 2008, to develop a comprehensive reform plan and capacity building program, addressing the weaknesses highlighted by the DeMPA report and which recognizes the primacy-fully acknowledged by the authorities-of developing a MTDS, laying the basis for an actionable reform program and, ultimately, better coordination of the full array of technical assistance providers that Ghana may wish to mobilize. l3 The MTDS was completed before the country s oil reserves were proven commercially viable, so it did not consider the potential impact of future oil revenues on Ghana s external borrowing needs. -7-

8 111. OPTIONS 14. According to the Non-Concessional Borrowing Policy there are several possible responses to Ghana s decision to borrow on non-concessional terms.14 Each option is elaborated below: An exception to the policy. An exception to the policy would result in Ghana s receiving the same volume of IDA on standard credit terms. A decision to grant an exception would need to reflect an understanding that Ghana has the institutions to manage modest levels of non-concessional borrowing to fund development projects aimed at meeting the MDGs, and that the rates of return on these are commensurate with their higher funding costs. However, there is still some uncertainty associated with the rates of return of some of these projects. Also, Ghana has already borrowed large amounts of non-concessional funds in the recent past and is planning to return to the market once it becomes an oil exporting country. Reducing IDA volumes. Another possible response to the non-concessional borrowing is a reduction in IDA volumes. However, the Non-Concessional Borrowing policy paper argues that reducing IDA volumes would be generally inappropriate as an incentive mechanism for green light MDRI recipients. The reason is threefold. First, volume cuts for countries that have already achieved a measure of debt sustainability in the wake of debt relief may undermine the chief MDRI goal of providing additional resources for the MDGs - without significantly affecting their already low debt distress risk. Second, there would be an equity issue vis-a-vis grant recipients: for the latter, the volume cut would bring the allocation down to the grant equivalent of an IDA credit. Since green light countries are receiving all of their allocation on credit terms, they are not receiving such a subsidy. Third, and perhaps most important, post-mdri green light status may signal an increased market access capacity. As a result, there is an increased risk that green light countries will compensate for reduced IDA allocations with increased nonconcessional borrowing. This kind of response would also serve to curtail the contribution that is made by IDA s engagement in sectoral dialogue and would reduce IDA s ability to assist Government in evaluating various investment options. Hardening IDA terms. For countries that are starting to gain market access, one response that IDA could consider would be to adjust IDA s financing terms to essentially follow the market, reflecting countries increased ability to access the market. Such an approach would be consistent with IDA s longstanding policy of linking concessionality with countries access to the market by reserving the most concessional resources for those countries that cannot afford less subsidized assistance. Any of the hardening of terms options would preclude Ghana from accessing IDA grants, while still providing scope for IDA to remain fully engaged in the country. Also, while this response would be a rational response to Ghana s increased non-concessional borrowing, it would need to l4 IDA Countries and Non-Concessional Debt: Dealing with the Free-Rider Problem in IDA 14 Grant Recipients and Post-MDRI Countries. Financial Resource Mobilization Department (FRM), June 19,

9 be weighed against the impact of the change in financing terms on Ghana s debt sustainability risks. The following hardened IDA financing terms are currently available: P Blend terms, with 35 years maturity, a ten-year grace period and current service charges (0.75 percent). This option was adopted last year to continue providing Ghana s full IDA allocation on these terms, signaling IDA S intention to remain fully engaged in the relevant sectoral dialogue, facilitating the provision of assistance to strengthen the project appraisal function within Government. IDA credits to Ghana currently carry therefore a 54 percent grant element, compared to the standard IDA terms which are equivalent to a 55 percent grant element, and thus would have no noticeable impact on the country s risk of debt distress. 15 P Hardened terms, with 20 years maturity, a ten-year grace period and current service charges (0.75 percent). This option would carry a 43 percent grant element and would exacerbate the breaches but not have any noticeable impact on the country s debt sustainability indicators beyond those already captured in the 2009 joint DSA. P Hard term window, with blend terms plus interest rates set at 200 basis points below the IBRD lending rate in fixed-rate terms. This option would carry a grant element of about 16 percent and show a greater sensitivity to the debt sustainability stress tests, especially with regards to the present value of the debtto-gdp ratio, and the present value of the debt service-to-revenues ratio. 15. What is the expected impact of hardening IDA terms on the country s debt sustainability indicators in the current joint DSA? The hardening of IDA terms on Ghana s debt sustainability indicators would, as indicated just above, exacerbate the threshold breaches simulated under the stress tests in the 2009 joint DSA. More importantly, while the baseline scenario, as noted in paragraph 8, is resilient to a reduction in the grant element of new IDA financing, the projections still include IDA disbursements of over US$250 million during The DSA still assumes therefore that IDA will provide a significant share of Ghana s concessional funding to maintain debt sustainability within moderate risk levels. l5 The grant element percentages shown in this paragraph use a standard 5 percent discount rate and a standard disbursement profile. -9-

10 IV. NEXT STEPS 16. In light of the discussion above it is proposed that: IDA continues providing Ghana its full IDA allocation on blend terms in FY10.16 Maintaining this response is justified by the following factors: (i) market conditions have changed fundamentally; (ii) additional external financing sought by the Ghanaian authorities aimed at supporting ongoing development projects are needed to sustain economic growth and assist in meeting the MDGs; (iii) a graduated response permits time to assess developments as they unfold, including projected oil exports beginning in 2011; (iv) there are benefits associated with IDA s continued full engagement with this country as it makes sectoral policy choices and builds up its own capacity to evaluate the expected returns on its public investments; and (v) the signing of a PRGF program in 2009 indicates that the national authorities are committed to making progress toward fiscal consolidation. The Bank team continues supporting a robust program of technical assistance in the area of project appraisal and public-private partnerships, with a view to maintaining the engagement open in the sectoral dialogue and assisting the Government in evaluating various investment options.. IDA s response will need to be reassessed by the end of FY10, in light of further information on the volume and use of the additional non-concessional financing contracted in the intervening period, as well as a more thorough assessment as to the extent to which the government s project selection and appraisal systems have been strengthened, and a better understanding of the use of the proceeds of the nonconcessional loans contracted in 2007 and l6 IDA allocation on blend terms does not change Ghana s status as IDA only country. IDA blend terms should not be confused therefore with the blend terms extended to countries that are both IDA-eligible and credit-worthy enough to borrow from IBRD. -10-

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