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Ghana's national debt is expected to increase until 2028

According to the International Monetary Fund, Ghana’s President, Nana Akufo Addo, is about to Ghana into a debt spiral if he keeps on borrowing. But for the Ghanaian President, the expected debt increase is a necessary step to move forward in socioeconomic development. In other words, it is the price to pay for Ghana to remain economically sustainable. However, the Ghanaian economy has not been performing mightily. GDP growth is estimated to have slowed to 3.2% in 2022, down from 5.4% in 2021. The slowdown affected mostly the non-extractive sectors, as the recovery in gold exports supported extractives growth. The agriculture and services sectors experienced slower growth in 2022 than the year prior. High inflation and interest rates depressed private consumption and investment. Thus, government demand was weakened by the lack of access to capital markets and high debt service obligations.

Ghana's National Debt Forecasted

Source: International Monetary Fund

The IMF forecasted Ghana’s national debt to increase drastically between 2023 and 2028, from $76.46 billion to $139 billion. This increase is a total of $62.5 billion (81.74% increase). One of the reasons why this situation is already alarming is because the Ghanaian Cedi has declined. This decline of the currency increased the price of various commodities and services in the Ghanaian economy. In 2017, President Nana Akuffo-Addo implemented a new economic policy that would lead the country. This new policy is the Coordinated Programme of Economic and Social Development Policies; a 7-year economic plan (2017-2024) which is expected to create jobs for the country. According to President Nana Akufo-Addo, the policies are founded on five pillars of growth and development. These five pillars are: (1) revitalizing the economy; (2) transforming agriculture and industry; (3) revamping economic and social infrastructure; (4) strengthening social protection and inclusion; and (5) reforming delivery system of public services institutions. In order to fund these policies, President Akufo-Addo decided to borrow billions of dollars from the IMF to fund his economic projects. The IMF already warned the country that it was at high risk of debt-distress, but the government of Akufo-Addo kept on borrowing, pushing up the nation’s public debt from 56% of GDP to 63% before the pandemic. After the pandemic, Ghana borrowed even more in comparison with its neighbors, precipitating a budget-deficit crisis, the second highest in Sub-Saharan Africa at 16% as of 2020, far above the regional average of 6%.

Ghana's National Debt under President Akufo-Addo

Source: International Monetary Fund

Having a high debt-to-GDP ratio is problematic. Indeed, the higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default, which could cause financial panic in the domestic and international markets. A country by the World Bank found that countries whose debt-to-GDP ratios exceed 77% for prolonged periods experience a significant slowdown in economic growth. This has indeed been the case with Ghana whose debt-to-GDP ratio reached 80.1% in 2021. As a result, the 2022 fiscal deficit was well above target. The balance payments recorded a deficit of 5% of GDP, from a surplus of 1.9% in 2021. President Akufo is overleveraging the Ghanaian economy. And this overleverage may increase its national debt over the long-term, and this may fragilize even further the Ghanaian economy.


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