Economy experience high but unbalanced growth from mid-2000 to 2022 debt crisis – Former 1st Deputy Governor

Ghana's economy flourished between the mid-2000s and the 2022 debt crisis, characterized by robust GDP growth averaging 6% annually. This expansion was driven by exports of cocoa, gold, and subsequently oil production. However, the rapid growth came with significant drawbacks, as former First Deputy Governor of the Bank of Ghana, Dr. Maxwell Opoku-Afari, revealed in his article "How not to Miss a Crisis: Lessons from Ghana."

Dr. Opoku-Afari highlighted that while the discovery and exploitation of oil boosted growth, fiscal discipline weakened, particularly during election cycles. He noted that election-driven spending booms often resulted in deep fiscal and debt crises, with the pattern showing a weak link between election spending and electoral outcomes. The high spending did not translate into electoral victories, as the ruling government's electoral fortunes remained unchanged despite such spending.

The growth, though strong, was obtained at the expense of unsustainable fiscal deficits, a lack of diversification, and inadequate public infrastructure. Dr. Opoku-Afari, a Non-Resident Fellow of Finance for Development Lab, further explained that while Ghana began the decade with low gross public debt, it returned to debt distress twenty years later, demonstrating the cyclical nature of fiscal vulnerability.

The former IMF Mission Chief pointed out that Ghana's debt story mirrors the fiscal management challenges faced by resource-rich, lower-middle-income countries, marked by high infrastructure gaps and a growing middle class. By 2022, Ghana's gross public debt had surged from 38.9% of GDP in 2010 to 92.7%, before declining post-debt restructurings.

Key turning points in Ghana's debt trajectory included increased Eurobond issuance from 2007, accelerating after 2013, fiscal slippage, energy-sector costs, the impact of the COVID-19 pandemic, and terms-of-trade shocks, along with currency depreciation. For instance, in 2022 alone, the depreciation of the Ghanaian Cedi added GH¢93.9 billion to the external debt stock, equivalent to 0.2% of GDP.

Dr. Opoku-Afari noted that by 2018-2020, debt service accounted for over 45% of government revenues, exacerbating the perception of an unsustainable debt trajectory. Interest payments had outgrown the primary balance as a share of GDP, consuming nearly 60% of the budget between 2018 and 2022 when combined with compensation of employees. This left little fiscal space for critical investments in essential public services such as education, health, and water.

Thus, the national budget became increasingly constrained in its ability to function as an effective policy tool for driving development and improving livelihoods, creating a foundation for an unsustainable borrowing cycle that could close annual budgetary financing gaps.