The Director of the Institute of Statistical, Social and Economic Research (ISSER), Prof. Peter Quartey, has cautioned the government to resist any temptation to return to the international capital market prematurely, to help sustain recent gains in the economy.
Prof. Quartey, an economist, explained that hastily returning to the capital market would mislead investors and lead to exorbitant borrowing costs that would undermine recent economic progress.
He said the country's historical reliance on borrowing had been misdirected, with the government prioritising debt servicing and consumption over strategic investments in key sectors such as infrastructure and human capital development over the past quarter-century.
Addressing an inaugural lecture by the Ghana Academy of Arts and Sciences (GAAS) in Accra.
Prof. Quartey said the country should deliberately reduce its borrowing from the capital market and ensure that any borrowing was done at reasonable interest rates.
"In light of this, I strongly advise that we exercise extreme caution when dealing with the capital market, particularly when it comes to issuing Eurobonds," he added.
Inaugural lecture
The inaugural lecture is designed for newly elected fellows such as Prof. Quartey to deliver an address before other fellows and guests.
The 2025 edition is on the topic “Debt, investment and growth in Ghana: Did we borrow to consume?”
The well-attended lecture had attendees from both academia and industry, including the former Vice-Chancellor of the UG, Emeritus Prof Ernest Aryeetey; Vice President in charge of Arts Section at GAAS, Emeritus Prof. Takyiwaa Manuh; and Chief Executive Officer (CEO) of Stanbic Bank Ghana, Kwamina Asomaning.
In attendance were students from Accra Academy Senior High School (SHS), Presbyterian Boys, Wesley Grammar, Labone, Achimota SHSs, Startrite Montessori School and Faculty of the University of Ghana (UG).
Debt accumulation
The director stated that debt accumulation was a common phenomenon among developing countries, as their stage of economic development was often characterised by low savings, high current account deficits, and high imports of capital to augment domestic resources.
He said in some countries, borrowed funds had been a source of investment and growth where countries faced financing gaps, especially due to high budget deficits, external shocks and limited domestic revenue mobilisation.
He stated that debt was an important catalyst for investment and growth, but high levels of debt inhibited growth, when there was a debt overhang, external debt acted as a tax on investment, hurting the economy.
He said over the past two decades, debt had grown quite substantially in Sub-Saharan Africa (SSA) from 29.5 per cent of GDP in 2013; however, debt is around 59.8 per cent in 2023.
He said debt in Ghana increased from 42.9 per cent in 2013 to 82.9 per cent 2023 and dropped to 61.8 per cent in 2024.
He said for debt to be useful for economic growth, it must be matched with strategic investments in productive sectors of the economy.
Meanwhile, he said capital spending as a proportion of total government spending (a measure of investment) was 24.5 per cent in 2010, increased to 15.0 per cent in 2021, and declined to 12.6 per cent.
“A closer look at the debt drivers for Ghana and the sub-region shows a gradual shift from multilateral lending towards the international capital market, which is more expensive,” he said.
He said this brought new dimensions to the debt-investment growth nexus and required a re-examination of the threshold effects of high debt and growth.
“Ghana spends a greater proportion of borrowed funds for recurrent expenditure and interest payments, especially in the last two years, and, therefore, a greater portion of the country’s debt was consumed rather than investing in productive sectors,” he said.
Recommendations
Going forward, Prof. Quartey proposed that the government must take steps to legislate a debt ceiling with a 60 per cent ratio to gross domestic product (GDP).
He explained that although ECOWAS proposes a 70 per cent debt-to-GDP ratio, that was too high.
He said there was a need to practise prudent public financial management and establish an independent fiscal responsibility council.
“We must also ensure that there is a fully functional Government Integrated Financial and Management Information System (GIFMIS) to support efficient management of public resources.
“Improve domestic resource mobilisation and encourage less reliance on borrowing,” to avoid deficit financing, he added.
Worrying situation
For her part, Emeritus Prof. Manuh, who chaired the lecture, said it was worrying that the country spent GH2.69 billion on importation of offal, including guts, bladders, and stomachs of animals in 2024.
“The offal represents 1.1 per cent of the country’s top 10 imports last year.
So clearly, we have been borrowing to import some of these products,” she said.
She added that the lecture was timely for not only adults but students.
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