Sustainable Debt Management in Ghana

Ghana has been an active participant in the Highly Indebted Poor Countries (HIPC) Initiative, benefiting from substantial debt relief in the early 2000s. This relief created fiscal space that allowed for significant investments in infrastructure and social services, contributing to a period of robust economic growth. However, in recent years, the country’s debt trajectory has once again become a source of major concern for policymakers, international partners, and civil society. Post-HIPC Borrowing and the Rise of Commercial Debt Following its exit from HIPC, Ghana gained access to international capital markets, issuing its first Eurobond in 2007. This marked a shift in the debt portfolio from primarily concessional loans (from institutions like the World Bank and bilateral partners) to more expensive commercial debt. While this unlocked capital for development projects, it also exposed the economy to exchange rate volatility and higher debt servicing costs. By 2022, debt service was consuming more than half of government revenue, crowding out critical spending on health, education, and social protection. The Current Crisis and the DDEP The COVID-19 pandemic and global geopolitical shocks exacerbated Ghana’s fiscal vulnerabilities, pushing the debt-to-GDP ratio above 90% by 2022. This necessitated a return to the IMF and the launch of a Domestic Debt Exchange Programme (DDEP) in 2023 — a painful but necessary step to restore debt sustainability. The DDEP imposed significant losses on bondholders, including pension funds and individual investors, highlighting the real-world cost of unsustainable borrowing. The Way Forward: Transparency and Accountability Sustainable debt management requires more than just restructuring; it demands a fundamental change in how debt is contracted and utilized. EGP advocates for: • Greater Parliamentary Oversight: Parliament must rigorously scrutinize loan agreements to ensure they offer value for money. • Enhanced Transparency: All debt obligations, including collateralized loans and off-balance-sheet liabilities, must be publicly disclosed. • Strict Adherence to the Fiscal Responsibility Act: The deficit cap of 5% of GDP must be respected to prevent future spirals. Ghana’s path to recovery lies not in borrowing more, but in borrowing wisely and spending efficiently. Only through prudent management can we ensure that future generations do not inherit a burden they did not create.