Public debt is one of the most debated issues in Ghana’s economic management. Governments borrow to finance development, stabilise the economy, and manage short-term fiscal pressures. But borrowing without a clear strategy can create long-term challenges.
Understanding public debt policy is essential not only for policymakers but also for investors, business leaders, and ordinary citizens. As frequently analysed in economic commentary on The High Street Business, public debt is not inherently dangerous — mismanagement is.
Here is what public debt policy really means and why it matters.
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What Is Public Debt Policy?
Public debt policy refers to the framework a government uses to:
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Decide how much to borrow
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Determine where to borrow from
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Manage repayment schedules
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Control interest costs
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Ensure long-term sustainability
It is not just about borrowing money. It is about managing obligations responsibly.
Governments typically borrow through:
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External loans from foreign governments or institutions
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Multilateral agencies such as International Monetary Fund and World Bank
Each borrowing source has implications for interest rates, currency exposure, and repayment risk.
Why Governments Borrow
Public borrowing serves several purposes:
1. Financing Infrastructure
Roads, schools, hospitals, energy projects, and digital infrastructure often require large upfront capital that tax revenue alone cannot immediately cover.
2. Managing Budget Deficits
When government spending exceeds revenue, borrowing fills the gap.
3. Stabilising the Economy
During economic downturns, governments may borrow to stimulate growth and protect jobs.
Debt, when used productively, can support long-term development.
The Difference Between Good Debt and Bad Debt
Not all debt is equal.
Productive debt funds projects that generate economic returns — such as infrastructure that improves trade efficiency or energy projects that boost industrial output.
Unproductive debt finances recurrent expenditure without long-term economic impact.
A sound public debt policy prioritises productive borrowing and limits borrowing for consumption.
Domestic vs. External Debt
Public debt is typically divided into two categories:
Domestic Debt
Borrowed within Ghana, usually in local currency.
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Lower exchange rate risk
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Can crowd out private sector borrowing
External Debt
Borrowed from foreign lenders, often in foreign currency.
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May offer lower interest rates
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Exposes the country to exchange rate risk
If the cedi weakens, external debt repayments become more expensive.
A balanced debt portfolio reduces vulnerability.
How Public Debt Affects Citizens
Public debt is not an abstract concept. It influences daily life in several ways:
1. Taxes
Higher debt levels may lead to increased taxes to service repayments.
2. Inflation
If borrowing is excessive and financed improperly, it can contribute to inflationary pressures.
3. Interest Rates
Heavy government borrowing domestically can push interest rates higher, affecting businesses and consumers.
4. Public Spending Priorities
More revenue allocated to debt servicing means less funding for social programs and infrastructure.
Debt sustainability affects economic stability.
Debt Sustainability: The Core of Policy
A country’s debt is considered sustainable if it can meet repayment obligations without excessive strain on its economy.
Key indicators include:
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Debt-to-GDP ratio
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Interest payment-to-revenue ratio
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Fiscal deficit levels
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Economic growth rate
When debt grows faster than GDP, sustainability risks increase.
Public debt policy must align borrowing with economic growth potential.
The Role of Fiscal Discipline
Debt policy cannot succeed without fiscal discipline.
Governments must:
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Improve tax collection efficiency
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Reduce wasteful expenditure
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Prioritise high-impact projects
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Maintain transparent reporting
Transparency builds investor confidence and strengthens creditworthiness.
Strong fiscal governance lowers borrowing costs.
Investor Perspective on Public Debt
Investors closely monitor public debt levels because they influence:
High debt levels without a credible management plan can reduce investor confidence.
However, structured debt management, reform programs, and credible fiscal frameworks can restore stability.
Debt management is as much about perception as mathematics.
Lessons for Long-Term Policy
Effective public debt policy requires:
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Long-term planning rather than short-term political decision-making
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Clear communication with citizens
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Balanced domestic and external borrowing
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Strong economic growth strategies
Borrowing itself is not failure. Mismanagement is.
Public debt can be a development tool — or a constraint.
The difference lies in discipline, transparency, and strategic investment.
Conclusion From THSB
Public debt policy shapes Ghana’s economic future. It influences inflation, taxation, infrastructure development, and investor confidence.
Understanding how and why governments borrow helps citizens and business leaders interpret economic developments more clearly.
Debt should finance growth — not postpone problems.
A sustainable public debt strategy is built on productivity, fiscal responsibility, and long-term economic vision.
Source: The High Street Business
Disclaimer: Some content on The High Street Business may be aggregated, summarized, or edited from third-party sources for informational purposes. Images and media are used under fair use or royalty-free licenses. The High Street Business is a subsidiary of SamBoad Publishing under SamBoad Business Group Ltd, registered in Ghana since 2014.
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