By: Paul Appiah-KONADU(Dr), Cindy ODAME & Bismark OSEI
Government debt, also known as public, national, or sovereign debt, refers to the financial obligations incurred by a central government.
This debt comprises both domestic and external components, arising from cumulative annual budget deficits and government borrowing. A budget deficit occurs when government expenditure exceeds revenues within a fiscal year.
Public debt is a double-edged sword. When managed effectively, it can serve as a tool for economic development, financing essential infrastructure and social programs.
However, when debt levels spiral out of control, they can become a burden, draining government revenue through high-interest payments and limiting fiscal space for development.
Ghana’s public debt has been a subject of intense debate over the years—has it truly fueled growth, or is it becoming a challenge that threatens economic stability?
Historical Context of Ghana’s Public Debt
In the post-independence era, Ghana has grappled with substantial public debt due to persistent budget deficits and extensive borrowing. In 2017, the government’s projected revenue was GH¢44.9 billion, while projected expenditure stood at GH¢58.1 billion, leading to a projected fiscal deficit of 6.5% of GDP.
Provisional data on Government’s fiscal operations in 2018 indicated an overall deficit (on a cash basis) of GH¢11.7 billion (3.9% of GDP) against a target of ~GH¢11.0 billion (3.7% of GDP), a reduction from the 2017 deficit of GH¢15.6 billion (4.8% of GDP).
The fiscal deficit stood at 4.8 percent of GDP in 2019, rose to 11.7 percent of GDP in 2020, and then declined to 9.2 percent of GDP in 2021. In 2023, the government recorded a cash budget deficit of 3.3% of GDP against the target of 6.4% of GDP, and down from the deficit of 10.6 percent of GDP recorded in 2022.
This was primarily due to the IMF bailout conditions which compelled the government to tame its expenditures. For 2024, the government projected a cash deficit of 5.9% of GDP whilst that for commitment stood at 4.8% of GDP. From 2004 to 2023, Ghana’s budget deficit has averaged about 6.98% of GDP recording a notable high average between 2013 and 2016 – 8.35% (MoFEP, 2017).
Consequently, the persistent budget deficits have plummeted the country into more debts as they are usually financed through borrowing that come at high servicing cost especially from international borrowing avenues.
Following the Heavily Indebted Poor Countries (HIPC) initiative and Multilateral Debt Relief Initiative (MDRI) period in 2006, Ghana’s total public sector debt stock was GH¢4.9 billion, translating to 26.2% of GDP. By the end of 2008, the debt stock had risen significantly to GH¢9.8 billion (34.8% of GDP), partly due to a large fiscal deficit of 14.5% of GDP during the election year and the cedi’s depreciation against the dollar.
This upward trend continued, with the national debt reaching GH¢17.5 billion (38.9% of GDP) by the end of 2010, reflecting a 78% increase from 2008. (MoFEP, 2011). Between 2010 and 2012, Ghana’s government debt more than doubled to GH¢35.1 billion, increasing the debt-to-GDP ratio from 38.9% to 48.4%. By the end of 2014, the debt had escalated to GH¢76.1 billion (67.1% of GDP), a 116.8% increase from 2012.
By June 2015, the total public debt stock had reached GH¢96.9 billion (72.7% of GDP), placing Ghana among highly indebted poor countries just a decade after receiving debt relief under the HIPC initiative. According to the UN and World Bank, any time a country’s public debt hit or crosses 70% of its GDP, then that country can be described as HIPC.
The debt trajectory continued its ascent in subsequent years. By the end of 2016, Ghana’s public debt had risen to GH¢122.3 billion, representing 73.3% of GDP. This upward trend persisted, with the debt reaching GH¢142.6 billion (69.8% of GDP) in 2017 and GH¢173.01 billion (57.6% of GDP) in 2018.
The year 2019 saw the debt climb further to GH¢218.2 billion, accounting for 62.4% of GDP. In 2020, amid the global economic downturn caused by the COVID-19 pandemic, Ghana’s public debt escalated to GH¢291.6 billion, equivalent to 76.1% of GDP (MoFEP, 2021).
The debt situation remained critical in the following years. By the end of 2021, the public debt had surged to GH¢351.79 billion, representing 80.1% of GDP. In 2022, the debt reached GH¢447.8 billion (72.9% of GDP), and by the end of 2023, it stood at GH¢608.4 billion, accounting for 72.3% of GDP.
Provisional public debt in nominal terms as at end Q3-2024 stood at GH₵807.8 billion, representing 79.2 percent of GDP, an increase of 11.3 percentage points from 67.9 percent recorded for the same period in the previous year (Q3-2023). (MoFEP, 2024).
From the statistics, Ghana is still a Highly Indebted Poor Country (HIPC) even after 68 years of gaining independence. The ever-increasing government debt has adverse implications on macroeconomic stability and economic development of the country in general.
Implications of Rising Public Debt
- High Cost of Debt Servicing
Debt servicing, encompassing interest payments and principal repayments, has consumed a significant portion of Ghana’s tax revenue. Ghana’s debt servicing costs have escalated in recent years.
Between 2017 and 2022, the country allocated approximately 42% of its revenue to debt servicing, a significant increase from the 27% recorded between 2010 and 2016. While GH¢36 billion was spent on debt servicing between 2010 and 2016, the amount soared to GH¢152 billion during the 2017–2022 period.
(The Ghana Report,2024). This substantial allocation of funds towards debt servicing reduces the resources available for essential public services and investments, thereby hindering economic growth and development.
The rising debt levels have also led to increased interest payments. From 2017 to 2020, interest payments grew from 5.2% to 6.3% of GDP. In 2022, the weighted average interest rate on external debt was 6.9 percent, while that on domestic debt was 21.2 percent.
In 2022, interest payments constituted 47.27% of government revenue. (Trading Economics, 2025). About half (i.e., 47 cents) of every dollar of revenue raised by the budget in 2022 were paid toward interest on public debt (IMF, 2023b as cited by Grigorian & Vessereau,2024).
Ghana’s interest payment projections indicate a significant fiscal burden in the coming years. According to Fitch Ratings, the interest payment-to-revenue ratio is expected to be among the highest for rated sovereigns, estimated at 29% in 2025 and 30% in 2026. (Ghana Web, 2024).
The Chairman of the Finance Committee, Patrick Boamah, disclosed that an amount of GHC20 billion has been earmarked in the 2025 Mini-Budget for interest payments, including obligations to Independent Power Producers (IPPs) and the Energy Sector Levy Account (ESLA). (The Ghana Report, 2025).
These projections underscore the importance of effective debt management and fiscal strategies to ensure sustainable economic growth.
- Depletion of Foreign Reserves and Currency Depreciation
Mounting external debt has exerted pressure on Ghana’s foreign reserves and the cedi’s value against major currencies like the dollar and euro. The total foreign debt increased from GH¢2.0 billion (10.7% of GDP) in 2006 to GH¢4.9 billion (17.4% of GDP) in 2008, partly due to the issuance of a US$750 million Eurobond in 2007 and new concessional bilateral financing and new borrowing contracted from the IDA from 2005.
By 2012, external debt had risen to GH¢16.6 billion (23.1% of GDP), reflecting borrowing from both bilateral and multilateral institutions, including an IMF Extended Credit Facility. In June 2015, external debt reached GH¢58.6 billion (44% of GDP).
The substantial foreign exchange required to service this debt, coupled with low export earnings, led to the depletion of foreign reserves and a significant depreciation of the cedi by over 400% against the dollar between 2007 and 2016.
Ghana’s external debt in nominal terms increased from GH¢68.9 billion (US$16.5 billion) in 2016 to GH¢75.8 billion (US$17.2 billion) in 2017, on account of positive net disbursement and exchange rate effect. The share of external debt declined from 56.3% in 2016 to 53.2% in 2017, whereas that of domestic debt increased from 43.7% to 46.8% over the same period. In terms of GDP, however, it declined from 41.2 % in 2016 to 37.1% in 2017.
About 48.5% of the debt portfolio was exposed to exchange rate risk at the end of December 2018. External debt stock percentage was 50.6% in 2019, 46.50% in 2020, 48.30% in 2021. The provisional public debt stock increased by GH¢83,519.4 million from GH¢351.8 billion recorded in 2021 to GH¢435.3 billion in 2022.
The Cedi depreciation alone accounted for GH¢67.2 billion of the change in the debt stock, representing 80.5% of the increase. The share of foreign currency debt in the total debt portfolio decreased significantly to 59.3% at end-December 2023, compared to 60.7% at end-December 2022.
The share of central government external debt in the total portfolio continues to rise, increasing from 57.7% in Q3-2023 to 60.9% in Q2- 2024 and further to 62.7% in Q3-2024. With external debt still high, exchange rate volatility will continue to heighten the numbers of our debt portfolio (MoFEP, 2024).
- Crowding Out of Private Sector Investment
In the early 2000s, Ghana’s domestic debt levels were relatively manageable, giving the government room to borrow without significantly distorting the financial system. In 2006, domestic debt stood at just GH¢2.9 billion, about 15.5% of GDP. But as the years rolled on, government borrowing became more aggressive. By 2011, the figure had jumped to GH¢11.8 billion, and a year later, it hit GH¢18.4 billion—over six times the 2006 level.
At the time, businesses were already feeling the pinch. Banks, seeing the government as a safer bet, directed more funds toward treasury bills and bonds rather than lending them to private businesses. Interest rates climbed, making it more expensive for companies to secure loans for expansion.
By 2014, domestic debt had ballooned to GH¢34.6 billion (30.2% of GDP). The trend was clear: as government borrowing increased, interest rates followed, and private sector access to credit became more constrained. Between 2015 and 2022, Ghana’s domestic debt accumulation accelerated, reaching GH¢301.46 billion (29.6% of GDP) by Q3 2024 (MoFEP, 2024).
In the latter part of January 2025, Treasury bill (T-bill) rates, which had remained stubbornly high in the latter part of 2024 due to excessive domestic borrowing, have finally started to decline.
This should have been great news-lower rates meant cheaper borrowing costs for businesses and individuals. However, the Governor of the Bank of Ghana, Dr. Johnson Asiamah, issued a warning: if not managed well, falling T-bill rates could put pressure on the cedi, potentially triggering another round of depreciation (MyJoyOnline, 2025).
A Sustainable Path to Managing Ghana’s Debt
To ensure sound public financial management and protect Ghana’s macroeconomic stability, it is crucial for the government to slow down borrowing, particularly from foreign sources. External loans should only be pursued if they finance projects with clear, measurable returns capable of repaying the debt.
Such projects must focus on expanding the country’s productive capacity—broadening the industrial base, adding value to raw exports, and improving key infrastructure like electricity and water supply. A deliberate effort to cut down Ghana’s import bill is also necessary to reduce pressure on foreign reserves.
Beyond borrowing practices, Ghana must urgently reform its public debt management framework. Leaving fiscal decisions solely in the hands of politicians increases the risk of unsustainable debt accumulation.
Instead, a more technically driven and transparent approach is needed to assess, manage, and mitigate external debt risks efficiently. The establishment of a Ghana Fiscal Council, if properly structured as an independent body with real oversight authority, could help enforce fiscal discipline and improve debt sustainability.
A disciplined approach to borrowing, combined with institutional reforms and a focus on long-term economic productivity, is the surest way to break Ghana’s cycle of debt distress and lay a strong foundation for future growth.
Paul is a lecturer of Economics at Pentecost University and Director of the Africa Entrepreneurship School, Accra
Cindy is a Volunteer at the Young Investors Network
Bismark is a lecturer at the C. K. Tedam University of Technology and Applied Sciences, Navrongo.
