Ghana’s rising debt levels and continued reliance on the capital market for financing have sparked fresh concerns from economists, with Prof. Peter Quartey, Director of the Institute of Statistical, Social and Economic Research (ISSER), cautioning the government against an immediate return to the capital market.

Speaking at his inaugural lecture as a Fellow of the Ghana Academy of Arts and Sciences, Prof. Quartey warned that loans from the capital market had proven to be expensive and unsustainable for Ghana’s development financing.

The government’s borrowing practices have long been a subject of debate, with critics arguing that excessive reliance on capital markets—especially Eurobonds—has contributed to Ghana’s ballooning debt.

Prof. Quartey emphasized that while borrowing is necessary for national development, it must be done cautiously and with a clear strategy for investment in productive sectors.

“Why the rush to go to the capital market?” he questioned, adding that previous borrowing from the capital market had led to unsustainable debt because the funds were not always channeled into productive ventures.

“[The capital market] is where we went to, and we are having these problems. And you still want to quickly finish giving people a haircut and go to the capital market… I want to sound this caution! Borrow less from the capital market and at reasonable interest rates.”
Prof. Peter Quartey

Ghana’s debt-to-GDP ratio stood at 42.9% in 2013, below the International Monetary Fund’s (IMF) 50% debt sustainability threshold. However, over the years, it has surged dramatically, peaking at 82.9% in 2023 before slightly reducing to 76% in 2024. These figures highlight the country’s heavy debt burden, raising concerns about fiscal sustainability.

The Push for Alternative Financing

Prof. Quartey urged the government to limit its dependence on capital market loans and instead focus on increasing domestic revenue mobilization and multilateral financing. He stressed that these sources are often cheaper and more sustainable in the long run.

“We ought to shy away from them. Let us get more multilateral and domestic sources of funding. They are cheaper.”
Prof. Peter Quartey

Multilateral financing from institutions such as the World Bank, IMF, and African Development Bank provides concessional loans with lower interest rates and longer repayment periods compared to commercial borrowing from the capital market.

Prof. Quartey believes that leveraging these options, along with strengthening domestic revenue mobilization, would ease the pressure on government finances.

Domestic Revenue Mobilization: A Key Solution

A core recommendation from Prof. Quartey is the need for the government to be more aggressive in raising domestic revenue.

Ghana has faced challenges in effectively collecting taxes, with tax-to-GDP ratios remaining lower than expected. Improving tax collection mechanisms, widening the tax base, and reducing leakages in public finances could significantly boost government revenue.

Additionally, promoting industrialization and supporting local businesses could help generate more internal revenue, reducing the need for external borrowing.

One of the major drawbacks of excessive borrowing from the capital market is the high cost of debt servicing. Prof. Quartey noted that successive governments had borrowed at high rates, with a significant portion of the funds being used for public sector salaries and interest payments rather than productive investments.

This has created a cycle of borrowing to pay off previous debts, further worsening the fiscal situation.

His sentiments were echoed by Emerita Prof. Takyiwaa Manuh, Vice President of the Arts Section of the Ghana Academy of Arts and Sciences, who cautioned that while borrowing is necessary, it must be done wisely. “The debtor must eat, but the debtor must be careful of what they eat,” she remarked.

Prof. Manuh noted that Prof. Quartey’s lecture will spark discussions among economic and financial professionals, policymakers, and industry players in attendance.

Meanwhile, many experts agree that Ghana must adopt a more disciplined approach to borrowing and implement policies that encourage sustainable financing.

She urged the government to borrow less from the capital market and at reasonable interest rates, ensuring that any loans acquired are used for projects that generate long-term economic benefits.

Moreover, she called on policymakers to heed advice from experts and academia, integrating well-researched proposals into the national economic strategy.