Ghana’s economy - Result of walking through broad

BY: Dr Kwabena Duffuor
The Author
The Author

Ghana’s public finances are deteriorating very fast. At the root of the present difficulties is a fiscal policy characterised by weak domestic revenue mobilisation and rapid expenditure growth driven by budgetary rigidities and new spending programmes.

This type of fiscal policy that has been pursued for nearly a decade now has produced huge deficits and a rapid debt build-up, causing a sharp and persistent increase in debt service spending, which is currently weighing down the nation’s finances.

If there was any doubt about this fact before, there can be none now, given recent developments concerning Ghana’s sovereign bonds and international investors’ assessment of the country’s creditworthiness.
Ghana’s sovereign bond prices have fallen sharply since the turn of the year, recording the worst performance among emerging market bonds.

Fitch ratings

Falling bond prices imply rising bond yields, which simply mean that investors are demanding higher interest rates to hold Ghana’s bonds or lend fresh money to the country.

Thus, Ghana’s sovereign debt is considered ‘distressed’, with investors losing confidence in the government’s ability to restore the public finances to a stronger footing.

Ken Ofori-Atta,  Minister for Finance

The alarm over Ghana’s fiscal situation has now deepened when on January 14, Fitch, the ratings agency, downgraded the country’s long-term foreign-currency issuer default rating to “B-” from “B”, with a negative outlook.

Fitch basically said the likelihood of Ghana defaulting on its long-term external debt had increased because of the deteriorating fiscal situation and weak credibility of the government’s fiscal consolidation plans.

The downgrade will lead to higher borrowing costs at a time when the country is already saddled with one of the heaviest debt service burdens in the world.


Following the Highly Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI) debt reliefs in between 2001 and 2006, Ghana enjoyed a period of high economic growth and relatively strong domestic revenue mobilisation.

Between 2005 and 2008, annual real GDP growth averaged 6.4 per cent while real growth of total government revenue and grants averaged 7.1 per cent, surpassing real GDP growth.

Between 2009 and 2012, average real GDP growth soared to a record rate of nine per cent.

The fiscal policy strategy that was implemented during this period prioritised domestic revenue mobilisation, which led to average real growth of total revenue and grants of 18.7 per cent, more than double the record-high average real GDP growth rate.


Unfortunately, this fiscal policy strategy appears to have been abandoned in favour of Eurobond financing barely a decade ago.

For almost a decade now, both real GDP and real revenue growth rates have been falling, with average GDP growth slumping from nine per cent between 2009 and 2012 to 3.9 per cent between 2013 and 2016.

The real growth of total revenue and grants also plummeted from 18.7 per cent between 2009 and 2012 to 3.8 per cent between 2013 and 2016.

This meant that the real growth of government revenue, which had been more than twice the rate of economic growth in 2009-2012, was now trailing a much lower real GDP growth rate.

At the same time, the issuance of sizeable Eurobonds in the international capital markets for deficit financing became a key feature of the fiscal policy strategy pursued in the period.

Whereas by the end of 2012, Ghana’s outstanding Eurobond remained the $750 million debut bond issued in 2007, the value of outstanding Eurobonds increased to $3.88 billion in 2016. The sales of these Eurobonds contributed to rapid debt accumulation in the period.

This fiscal policy strategy that was marked by weak revenue mobilisation alongside dependence on Eurobond financing continued after 2016.

Debt stock

More Eurobonds were issued, in double and triple tranches and with larger sizes, to finance large fiscal deficits. This increased the stock of outstanding Eurobonds to $10.22 billion by 2020 from $3.88 billion in 2016.

In 2021, the total interest paid on these bonds exceeded $800m. In the same year, additional Eurobonds worth $3.025 billion were issued, which, minus refinancing of previous bonds, increased the stock of outstanding bonds to $13.14 billion.

With the decelerating revenue growth a decade ago, budget rigidities intensified and were aggravated by new spending programmes that increased borrowing and debt service obligations.

The proportion of public revenue devoted to employee compensation and debt service, which stood at 65.3 per cent in 2012, surged to 99.7 per cent in 2019.

This put the public finances in a precarious state before the onset of the COVID-19 crisis, and in 2020, the government needed to spend 121.4 per cent of its revenue to fund these two items alone.

Debt service cost

Debt service spending has seen a dramatic growth that it has occasioned, justifiably, much of the present anxiety over the fiscal situation.

Whereas in 2009-2012, the government required, on average, 15.4 per cent of its annual revenue to pay debt interest, the ratio worsened further to 37.3 per cent in 2017-2020.

The latest available data suggests that the government devoted a record 46.2 per cent of revenue to interest payment in 2021.

For overall debt service spending – interest plus amortisation – this consumed 70.1 per cent of revenue in 2020 and remained above 65 per cent in 2021.

These rates are simply terrifying, considering that just 19.5 per cent of revenue was needed for debt service in 2012.

This story of rapid fiscal decline fundamentally exposes a fiscal policy strategy pursued for almost a decade that has come apart at the seams and urgently needs to be reset.

Fiscal policy

A change in fiscal policy strategy from domestic revenue mobilisation to Eurobond market revenue mobilisation had lots of benefits and, therefore, was attractive to the government.

Large proceeds were usually accumulated much easier and faster than could be achieved on the domestic market.

However, Eurobond funds, no matter how large the proceeds or how fast they were accumulated, were non-concessional loans and, therefore, expensive.

We are now at a point where the chickens are coming home to roost and our debtors are at our door – something must be done, and done immediately.

The change in the country’s fiscal policy strategy in relation to revenue mobilisation is like the Bible passage in Matthew 7 vs 13 which states, “Enter through the narrow gate.

“For wide is the gate and broad is the road that leads to destruction, and many enter through it.”

It is clear that we abandoned the narrow gate which was the domestic revenue mobilisation gate and chose the road which led to Eurobond market revenue mobilisation broad gate.

Walking through the broad gate has led to destruction and we should, therefore, get back to the narrow gate without any further delay.

Walking through the narrow gate again will bring recovery, prosperity and dignity.

The writer is an economist, and a former Minister of Finance and Bank of Ghana Governor.