Ghana’s unsustainable public indebtedness: Causes, consequences and remedies

Author(s):

 Emmanuel Akuoko-Konadu¹ and Imhotep Paul Alagidede²

xakuokok@mendelu.cz
2025-01-06 09:20:22

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Abstract

This paper examines the causes and long-run consequences of public debt on economic growth and inflation in Ghana from 1990 to 2022. The study assesses key drivers of public debt, including interest rates, money supply, and financial development. Using the autoregressive distributed lag (ARDL) bounds testing approach and accounting for structural breaks, the findings reveal a significant negative relationship between public debt and economic growth, indicating that high levels of indebtedness may hinder sustainable development by diverting resources away from produc tive investments. Interestingly, the analysis also uncovers a counterintuitive negative relationship between public debt and inflation, suggesting that effective fiscal and monetary policies have mitigated potential inflationary pressures associated with rising debt levels. From a policy perspective, the study advocates for prudent debt management strategies that prioritize investments in pro ductive sectors. It is also imperative for policymakers to consider rigorous cost-benefit analyses to ensure that borrowing decisions are aligned with high-return projects that generate sufficient economic output to repay the debt.

Keywords
Public debt, economic growth, inflation, Ghana, ARDL.

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