Ghana: Public Debt and Debt Sustainability Issues

Ghana’s public debt situation has worsened in recent years and the country now faces a high risk of debt distress and increased overall debt vulnerability. Total public debt service-to-revenue ratio (including payments on external and domestic debt) has not only assumed a rapidly increasing path but has breached its indicative long term threshold.

Debt service now absorbs a large part of domestic revenues, leaving the country vulnerable to shocks. All other debt indicators have deteriorated owing to deteriorated domestic and external borrowing conditions, weak fiscal consolidation, and weakening of the domestic currency. Maintaining the country’s debt sustainability will require a carefully designed fiscal consolidation measures combined with a more ambitious medium-term adjustment to spur robust economic growth, enhance domestic revenue mobilization and reduce the worsening debt and debt-service indicators.

Since the Monterrey Consensus in 2002, there has been considerable change in the landscape for sovereign debts. Strengthened macroeconomic and public resource management and substantial debt reduction through the heavily indebted poor countries (HIPCs) and multilateral debt relief initiatives (MDRIs) have led to a substantial decline in the vulnerability of many countries to sovereign debt distress. Despite the improved efforts at debt sustainability and crisis prevention, sovereign debt distress continues to occur. Many countries continue to remain vulnerable to debt crises and some are in the midst of crises. Recent increases in the issuance of domestic currency debt, along with increased borrowing from emerging official creditors and the private sector have complicated the landscape for debt sustainability and crisis prevention for many developing countries, including Ghana.

The purpose of this study is to examine the issue of debt and debt sustainability in Ghana as the country’s public debt stock has risen substantially since it enjoyed HIPC and MDRI debt relief in 200506. The paper is organized as follows. Section two examines the debt trends in developing countries, particularly in sub-Saharan Africa to provide the context for Ghana’s debt and its sustainability issues. Section three reviews the recent debt developments in Ghana, focusing on the trends, management, sustainability, and risks. Section four covers the policy considerations for maintaining debt sustainability while section five concludes the study.

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