Ghana's celebrated economic growth in the decade before its debt crisis masked a troubling reality. The economy expanded without the necessary productivity and structural changes to support rising debt, according to a new study.
Dr. Maxwell Opoku-Afari, former First Deputy Governor of the Bank of Ghana, authored the study. It highlights that Ghana averaged 6.7 percent real GDP growth between 2010 and 2019, outperforming much of Sub-Saharan Africa. However, beneath these impressive figures, productivity was deteriorating, and the economy remained heavily reliant on a few commodities.
This growth, while strong, did not lead to a fundamental restructuring of the economy. Manufacturing, for instance, failed to become a powerful engine for economic transformation. This disconnect meant the economy could not generate enough revenue to comfortably service the debt accumulated during this growth period. This situation is a key, often overlooked, explanation for Ghana's eventual debt crisis.
Dr. Opoku-Afari's study, published by the Finance for Development Lab (FDL), argues that borrowing becomes dangerous when debt grows faster than the productive capacity supporting repayment. He states that Ghana's economic expansion depended more on adding labor, capital, and natural resources than on becoming more efficient. This distinction is crucial for understanding debt sustainability.
Ghana experienced rapid economic expansion after receiving debt relief under the Highly Indebted Poor Countries initiative. Oil production, starting in 2011, boosted an economy already benefiting from gold and cocoa exports. GDP growth reached about 14 percent in 2011 and remained around 8 percent in 2017 and 2018. The average annual growth of 6.7 percent between 2010 and 2019 significantly exceeded Sub-Saharan Africa's average of approximately 4.1 percent.
However, the composition of this growth was problematic. The study found that Ghana continued its heavy reliance on gold, cocoa, and oil. Labor-intensive manufacturing and other productivity-enhancing sectors did not expand sufficiently. Between 2013 and 2024, the extractive sector grew by approximately 5.6 percent annually. Agriculture grew by 4.7 percent, and manufacturing by only 3.3 percent. Manufacturing accounted for just 10.8 percent of GDP on average during this period. This meant rapid GDP expansion did not create the fundamental economic restructuring needed to diversify exports, create productive employment, or broaden the domestic tax base.
The study's most striking finding concerns total factor productivity (TFP). TFP measures how efficiently an economy combines labor, capital, and technology to produce output. Dr. Opoku-Afari found that Ghana's TFP has been on a persistent downward trend for over four decades. This implies that much of Ghana's economic growth came from simply adding more inputs, not from becoming more efficient or technologically advanced. This trend makes borrowing for development riskier, as investments did not sufficiently raise future productivity, exports, or government revenues to repay the debt.
The composition of government expenditure worsened the problem. Despite increased borrowing, capital expenditure declined significantly as a share of government spending. It fell from 27.5 percent in 2010 to 15 percent in 2016, and further to 12.8 percent in 2022. This meant a progressively smaller share of public funds went into investments that could expand the economy's future productive capacity. Simultaneously, Ghana became increasingly reliant on commercial borrowing. Between 2007 and 2021, the country raised approximately US$15.59 billion through nine international capital-market issuances. These Eurobond proceeds were not tied to self-financing projects. Instead, they largely formed part of general budget financing, including recurrent expenditure. Borrowing to finance existing expenses, rather than productive infrastructure, increases liabilities without creating corresponding future income streams. This analysis reframes Ghana's debt crisis. It was not just about borrowing too much. It was also about what the economy produced, what the government borrowed for, and whether economic growth was productive enough to sustain the resulting liabilities. The country's sectoral structure changed little between 2013 and 2024. Agriculture remained around one-fifth of the economy, industry was heavily influenced by volatile extractive activities, and services dominated. The critical failure was the lack of emergence of higher-productivity, export-oriented manufacturing. Such a sector could have expanded foreign exchange earnings, the tax base, and employment opportunities, providing a more robust foundation for economic stability.