Ghana's 2022 descent into debt distress was not fully captured by International Monetary Fund (IMF) debt assessments, according to a new policy paper. Dr. Maxwell Opoku-Afari, former First Deputy Governor of the Bank of Ghana, authored the study. It highlights how existing frameworks did not adequately reflect the speed and probability of the crisis.
The paper, published by the Finance for Development Lab (FDL), questions the suitability of the debt sustainability framework applied to Ghana. It argues the framework did not sufficiently account for risks from the country's changing debt structure. Specifically, it overlooked the rapid expansion of expensive domestic debt. This oversight meant that despite Ghana being at high risk of debt distress since 2015, assessments continued to deem its debt sustainable.
This situation fits into a broader narrative of Ghana's economic challenges and its repeated engagements with the IMF. Ghana has undergone 17 IMF-supported programmes over six decades. This history suggests that short-term stability has not consistently led to lasting structural adjustments. The country's public debt-to-GDP ratio surged from below 55 percent in the early 2010s to nearly 93 percent by 2022. This trend underscored growing vulnerabilities that were not fully integrated into risk assessments.
Dr. Opoku-Afari states that the problem was not a lack of warning signals. Instead, it was how these signals were translated into assessments of crisis probability. He notes that the evidence became increasingly difficult to ignore. For example, the external debt service-to-revenue ratio breached its benchmark as early as 2013. It then exceeded 40 percent of government revenue by 2022. Interest payments consistently remained above 20 percent of government revenue during this period.
A central criticism in the paper concerns the treatment of Ghana under the Low-Income Country Debt Sustainability Framework (LIC-DSF). Dr. Opoku-Afari argues this framework was not responsive enough to Ghana's evolution into a frontier economy. Ghana gained significant access to international capital markets and developed a sophisticated domestic debt market. The framework did not adequately capture risks from domestic debt, which became crucial as the government shifted borrowing towards the local market. Commercial banks, pension funds, insurance companies, and foreign investors became major holders of government securities.
This shift did not eliminate risk; it merely changed its form. The weighted-average interest rate on Ghana's public debt was estimated at 10.7 percent. Furthermore, 17.5 percent of the debt stock was due to mature within one year. Foreign-currency-denominated debt averaged 54.5 percent of total public debt. This left Ghana heavily exposed to exchange-rate movements. This created a dangerous interaction between the quantity and quality of debt. As interest payments rose, the government needed to borrow more. Refinancing occurred at increasingly expensive rates. The depreciation of the Ghana cedi simultaneously increased the domestic-currency value of external obligations.
Dr. Opoku-Afari identifies three key shortcomings in the surveillance architecture. First, baseline projections were often overly optimistic. They relied heavily on assumptions of sustained fiscal consolidation, stronger domestic revenue mobilisation, and robust economic growth. Second, domestic-debt dynamics and the feedback loop between government finances and the financial sector were not fully considered. Third, successive adjustment programmes focused more on near-term fiscal consolidation. They paid less attention to resolving structural weaknesses. These weaknesses included energy-sector inefficiencies, state-owned enterprise governance issues, and persistent shortcomings in tax policy and administration.
The paper concludes that Ghana could periodically restore macroeconomic stability without eliminating the underlying causes of repeated debt accumulation. This lesson extends beyond Ghana. As African economies develop domestic capital markets and access commercial financing, traditional assessments focusing on external debt may no longer provide sufficient early warnings. Dr. Opoku-Afari calls for greater attention to liquidity and refinancing risks, domestic debt costs, and sovereign-bank linkages. These factors are critical for effective debt management and crisis prevention.