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The Dynamics of Public and Private Debt in Ghana

Author

Listed:
  • Aimola Akingbade Urungbodi

    (Department of Economics, University of South Africa,Pretoria, South Africa)

  • Odhiambo Nicholas M.

    (Department of Economics, University of South Africa,Pretoria, South Africa)

Abstract

This paper explores the dynamics of public and private debt in Ghana for the past 32 years. Ghana’s total public debt stock to Gross Domestic Product (GDP) ratio has remained above the 60.0% sustainability threshold recommended by the West Africa Monetary Zone (WAMZ) since 2013. Implemented bank reforms in the country show an upward trend for domestic credit to private sector by banks as a percentage of GDP. Using exploratory review approach, the paper identified fiscal dominance, cost of borrowing, deterioration in export earnings, ineffective fiscal, monetary and debt management policies coordination as factors responsible for changes in total public debt stock. On the other hand, increased domestic borrowings by government from the banks, and Deposit Money Banks’ (DMBs)’ adverse selection in private sector credit allocation affect changes in domestic credit to the private sector by banks. Of these causes, fiscal dominance is the major determinant of public and private debt in Ghana. The study, therefore, recommends that government should pursue fiscal operations that are necessary to put public debt on a declining path. In addition, effective coordination of fiscal, monetary and debt management policies need to be strengthened together with the autonomy of the Bank of Ghana in the use of its monetary policy instruments.

Suggested Citation

  • Aimola Akingbade Urungbodi & Odhiambo Nicholas M., 2018. "The Dynamics of Public and Private Debt in Ghana," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 28(4), pages 24-44, December.
    • Handle: RePEc:vrs:suvges:v:28:y:2018:i:4:p:24-44:n:2
    DOI: 10.2478/sues-2018-0018
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    References listed on IDEAS

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    2. Dumiter Florin & Brezeanu Petre & Radu Claudia & Turcas Florin, 2015. "Modelling Central Bank Independence and Inflation: Deus Ex Machina?," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 25(4), pages 56-69, November.
    3. Christian Dembiermont & Mathias Drehmann & Siriporn Muksakunratana, 2013. "How much does the private sector really borrow - a new database for total credit to the private non-financial sector," BIS Quarterly Review, Bank for International Settlements, March.
    4. Nii K. Sowa & Ivy K. Acquaye, 1999. "Financial and foreign exchange markets liberalization in Ghana," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(3), pages 385-409.
    5. Gerald Epstein & James Heintz, 2006. "Monetary Policy and Financial Sector Reform for Employment Creation and Poverty Reduction in Ghana," Research Report 2, International Policy Centre for Inclusive Growth.
    6. James Heintz & Gerald Epstein, 2006. "Monetary Policy and Financial Sector Reform For Employment Creation and Poverty Reduction in Ghana," Working Papers wp113, Political Economy Research Institute, University of Massachusetts at Amherst.
    7. AfDB AfDB, . "Annual Report 2012," Annual Report, African Development Bank, number 461.
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    Cited by:

    1. Sedegah Kordzo & Odhiambo Nicholas M., 2021. "A Review of the Impact of External Shocks on Monetary Policy Effectiveness in Non-WAEMU Countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 31(3), pages 37-59, September.

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