Three essays on economic impact assessment of the use of the Heavily Indebted Poor Countries (HIPC) initiative for poverty reduction in Ghana
Ghana applied to join the Heavily Indebted Poor Countries (HIPC) in 2001. The argument was that HIPC spending will help to develop capacity of the poor (through human development), give them capital for investment (through micro-credit), improve their labour productivity (through improvement in health and rural water and sanitation), enhance rural agriculture (through feeder roads construction and rehabilitation), give them skill training, etc. These will enhance the incomes of the poor in the immediate future and help them come out of the vicious cycle of poverty. After eight year of implementation there was the need to assess the impact of the initiative on poverty reduction. This study therefore investigates the economic impact of the utilization of the HIPC relief fund on poverty reduction in Ghana. Specifically, the study objected to: assess the extent to which the HIPC relief fund has helped to reduce poverty, both at the individual and community levels; determine the relative effectiveness of the various HIPC funded programmes to the reduction of poverty; assess the impact of the HIPC micro-credit on poverty reduction and its benefit incidence; examine how the poor themselves feel about how the programmes have improved their welfare and hence reduced their poverty situation; and examine the extent to which the HIPC initiative has improved the asset, need-base and capabilities of the poor that will make them function as economic and social being. These research concerns were addressed in the thesis in a three separate but related essays on; Economic Impact Assessment of the Heavily Indebted Poor Countries (HIPC) Initiative on Poverty Reduction in Ghana; The Heavily Indebted Poor Countries (HIPC) Initiative Micro-credit and Poverty Reduction in Ghana: a Panacea or a Mirage?; and Assessment of the Impact of the Heavily Indebted Poor Countries (HIPC) Initiative on Poverty Reduction: The Subjective-Multidimensional and Deprivation Approach, in that order. The techniques that were used for the analysis included: FGT Index method (Foster, Greer and Thorbecke, 1984); Community Poverty Ratio method (Sullivan, 2002); Benefit Incidence Analysis methods (Demery, 2003); Subjective-Multidimensional Model (Van Praag et al, 1982); Multidimensional Deprivation method (Barrientos, 2003); Capabilities and Functioning model (Sen, 1983), among others. The definitions and details of these approaches are provided in the appropriate essays that constitute the Thesis. The study used method with no counterfactual (before and after), which compares the performance of key variables after the initiative with those prior to the initiative. The approach uses statistical methods to evaluate whether there is a significant change in some essential variables over the period. The study uses both primary and secondary data. The primary data were derived from household survey. Some of the major findings of the study are summarised as follows: In the first essay, the study found that over the period when the Heavily Indebted Poor Countries (HIPC) initiative was implemented per capita income of the households have significantly increased and therefore decreasing the proportion of the people below the poverty line. The Foster-Greer-Thorbecke (FGT) Poverty Gap Index (PGI) also indicates that the proportion of income needed to transfer the poor above the poverty line has also significantly reduced over the period. By implication over the period poverty incidence has been reduced. Secondly, the extent of community deprivation of social amenities reduced. That is over the period of the HIPC implementation (2001-2008) more social amenities were provided to the communities. For example 27 more communities were provided with health facilities, 30 were connected with electricity, 40 got access to telephone facilities and 33 communities had their feeder roads re-shape to all weather roads. It also came out that there was improvement in human development outcomes; school enrolment, attendance, retention, completion rate, school performance, adult literacy rate, life expectancy at birth, coverage of vaccination, and delivery assistance increased over the period while infant mortality, maternal mortality, malnutrition, malaria rate, cholera cases, and guinea worm cases went down. Furthermore, the study found that the improvement in the human development outcomes significantly relate to HIPC initiative funds, except in the case of school performance, adult literacy rate and malaria cases. Hence, it can be said that with respect to the provision of social amenities for communities the HIPC initiative has done marvelously well to reduce poverty in Ghana. Thirdly, the ordinary least square (OLS) analysis proved significantly that the poverty reduction is positively related to the initiative. Hence, the hypothesis that the HIPC initiative has reduced poverty in Ghana is accepted and therefore the strategies used under the initiative have high potential to Ghana’s future poverty reduction, growth and over-all economic development. Furthermore, the study found that the most effective programme to poverty reduction is education, followed by health and water and sanitation. These programmes proved statistically significant relationship to the poverty reduction over the period. This means that when funds are shifted from micro-credit, private sector development and good governance, the rate of poverty will fall. The study however found that over the period the intensity of poverty (inequality among the poor) increased implying that the HIPC initiative appears not pro-poorest. This was shown by the increase in the Foster-Greer-Thorbecke (FGT) squared poverty gap index from 2000 to 2008. This means the proportion of income needed to move the more poor to catch up with the less poor has increased over the period. This implies that the initiative was more regressive to the poorer and hence not pro-poor. This suggests that even though the initiative has helped to reduce poverty, it impacted significantly on the less poor in the country than the poorest. Again, some of the programmes; example, the micro-credit, private sector development and good governance appear not to impact on the poor meaning they were probably poorly implemented or they might have long term effects on poverty reduction whose impact cannot be immediately felt. From the second essay, the study found that the HIPC micro-credit is a panacea to poverty reduction in Ghana. That is it has the potential for poverty reduction because between the HIPC implementation period (2001- 2008), the beneficiaries of the HIPC micro-credit had significant increases in their incomes than the non-beneficiaries. However, from the benefit incidence analysis in section 4.5.2 the distribution of the HIPC micro-credit was skewed. Both the standard and the marginal benefits of the micro-credit were distributed regressively towards the rural areas and the poorest income-quintile of the population. This therefore explains why the intensity of poverty (inequality among the poor) increased as discussed in section 3.4.1. By implication, if efforts are made to channel the HIPC micro-credit to the rural areas and the poorest income-quintile of the population, the country is likely to reduce poverty drastically, if not completely eradicate it. The third essay revealed that both the head count and poverty gap indices from Foster-Greer-Thorbecke (FGT) were very high. Also, over the period there was no significant reduction. From counts of domain satisfaction on average over 60% of the households felt that they were poor by all the welfare indicators and therefore it is clear that from the subjective point of view that the initiative did not significantly reduce the poverty situation of the populace. Furthermore, the study found that the initiative did not significantly improve the households’ basic-needs, asset-needs and capabilities that will enable them enhance their well-being and help them to function as economic and social beings. There was no significant statistical difference between the conditions of the households’ basic-needs, asset-needs and capabilities in 2000 and 2008. The study therefore concludes that with respect to basic-needs, asset-needs and capabilities the initiative did not positively impact on poverty reduction over the implementation period.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the award of the Degree of Doctor of Philosophy in Economics, 2010