Stress Testing Ghana’s Debt Sustainability Analysis 2010-2021

Ghana exited her 16th IMF Debt Bailout Programme in April 2019. Unfortunately, in May 2023, she signed on to her 17th IMF Debt Bailout Programme because the country’s debt had once again become unsustainable. The question posed in this paper is, leading to 2021, did the authorities in Ghana undertake a thorough debt sustainability analysis? This study used the IMF-World Bank Debt Sustainability Framework for Low-Income Countries to analyse the dynamics of Ghana’s debt over 2010-2021. Using averages of key variables over 2000-2009, the baseline scenario revealed that, had these averages prevailed, Ghana’s debt ratio would have risen from 35% in 2009 to only 43% in 2021, a far cry from the actual 80.1% that drove her economy into a tailspin in 2022. The baseline scenario was stress tested assuming worsening scenarios of historical values of key variables. The results indicated that looking forward from 2009, moderate stress (worsening of the values of key variables by two standard errors) would be enough to make the year-on-year evolution of the debt ratio unsustainable. The cause of the ballooning debt ratio was traced to a primary balance that remained lower than its debt stabilizing value and Ghana having to borrow regularly to service previous debt. Keywords: debt sustainability analysis, stress test, Ghana, IMF, primary balance