The Institute for Fiscal Studies (IFS) has urged the government to avoid seeking every opportunity to return to the international bond market. Instead of relying on external borrowing, IFS recommends that the government take lessons from the Bank of Ghana’s Gold Purchase Programme, which helped boost international reserves without increasing debt.
IFS highlighted that Ghana has faced two major debt crises since 2000, both resulting from excessive borrowing.
The first crisis, the HIPC (Highly Indebted Poor Countries) crisis of 2001, stemmed from the accumulation of external debt in the 1980s and 1990s. Ghana was only able to recover through debt forgiveness under the HIPC Initiative.
The second crisis, which hit in 2022, was caused by a rapid build-up of both external and domestic debt over the previous decade. However, its immediate trigger was Ghana’s loss of access to the international bond market in early 2022 after multiple credit rating downgrades pushed the country’s bonds into junk status. The IFS noted that the process of restructuring external debt was far more complex and time-consuming than addressing domestic debt, further worsening the crisis.
IFS emphasized the importance of preventing another foreign debt crisis at all costs. The think tank pointed out that in the last three years, Ghana has managed to operate without international borrowing by reducing fiscal deficits and leveraging natural resources like gold to build reserves.
IFS recommends that the government maintain a low fiscal deficit to reduce borrowing needs and continue exploring self-reliant economic strategies.
“The government should learn lessons from the past three years in which the country has carried on without borrowing from the international bond market,” the report stated.