Ghana’s debt sustainability challenges persisted for 12 years, with key Debt Sustainability Analysis (DSA) indicators breached between 2010 and 2022. Dr. Maxwell Opoku-Afari, former First Deputy Governor of the Bank of Ghana, revealed this concerning trend. He stated that despite repeated engagement with the International Monetary Fund (IMF), Ghana’s debt sustainability remained fragile.
Dr. Opoku-Afari, in his paper titled “How not to Miss a Crisis: Lessons from Ghana,” highlighted significant breaches. The present value (PV) of public debt-to-Gross Domestic Product (GDP) rose sharply after 2014. It persistently exceeded the 55.0% threshold, reaching nearly 93% by 2022. This indicates a severe and prolonged over-indebtedness for the nation.
This prolonged period of unsustainable debt accumulation significantly impacted Ghana’s economic stability. The country’s reliance on external borrowing and its inability to manage fiscal deficits contributed to this situation. This trend ultimately culminated in Ghana defaulting on its debt obligations in 2022. The default forced the country to seek a new IMF support program, the Economic Credit Facility (ECF).
Dr. Opoku-Afari noted that during the 2015–2019 IMF program, debt accumulation moderated. However, the debt-to-GDP ratio still remained above the sustainable benchmark. He also pointed out that the PV of external debt-to-GDP exceeded the 40% threshold from 2015 onwards. This reflected the impact of exchange rate depreciation on foreign currency liabilities. Subsequent debt restructuring did reduce the foreign debt burden and improved this specific metric.
The former First Deputy Governor emphasized that liquidity indicators also weakened considerably. Debt service-to-exports, which measures a country's ability to pay its foreign debt from its export earnings, exceeded the 15% threshold from 2015. More critically, debt service-to-revenue, the portion of government income used to pay debt, breached the same 15% benchmark as early as 2013. It then soared to more than 40% of government revenues by 2022. These figures underscore the severe strain on public finances.
These breaches collectively point to systemic fiscal fragility within Ghana's economy. Solvency risks, meaning the inability to pay long-term debts, and liquidity risks, the inability to pay short-term debts, reinforced each other. This dangerous combination ultimately contributed to the country's debt distress. It necessitated the painful process of debt restructuring to regain financial stability. The ongoing IMF program aims to address these deep-seated issues and restore macroeconomic stability.
Ghana’s experience serves as a critical lesson in fiscal management. It highlights the importance of adhering to debt sustainability indicators. Continuous monitoring and proactive policy adjustments are essential to prevent future crises. The government and financial institutions must work together to implement sustainable fiscal policies. This will ensure long-term economic health and prevent a recurrence of such prolonged debt challenges. Investors and international partners will closely watch Ghana's progress in managing its debt and implementing reforms.