Domestic debt sustainability and economic growth: Evidence from Ghana

Abstract

The rate at which Ghana’s domestic debt is increasing has raised concerns among economists and policymakers, due to the former’s potential effect on private sector growth, economic growth rate and debt sustainability. The objective of this study is to examine Ghana’s domestic debt, its sustainability on economic growth rate and the causal relationship between debt and growth. Using data from the World Bank and the Ministry of Finance for the period between 1994 and 2018, we estimate an ARDL Model to examine the effect of domestic debt on economic growth and private sector investment. We adopt the cointegration and fully modified regression to examine domestic debt sustainability. The results indicate that increases in Ghana’s domestic debt are growth-enhancing while increased in importation is growth-inhibiting. The fully modified regression and Johansen co-integration test model also suggest that the recent path of Ghana’s domestic debt is sustainable, though weak.

Keywords

• Domestics debts