Effect of Public Debt on Total Economic Output
Authors: Dr. Ebenezer M. Ashley  , Dr. Edward Kufuor  , Dr. Sayibu P. Gariba  , Emmanuel K. Agbenuvor  , Sarah T. Ackah  
Published: September 2024

Public expenditure has characterised the administrative functions of centralised and decentralised governments and authorities in society throughout human economic history. Making the necessary arrangements to meet the basic and essential needs and wants of citizens and residents of an economy plays a dominant role in the mandate and discharge of duties by various governments across the globe. However, a major economic challenge to most elected governments or otherwise relates to how to ensure efficiency in the management of public debt. The main purpose of this research was to examine the implications of growing public debt for the Ghanaian economy. The quantitative approach to scientific inquiry was adapted and used in the research. Specifically, the cross-sectional design formed the basis of the study. Data required for the current research were obtained mainly from secondary sources. These included textbooks, peer-reviewed articles published in journals, grey literature and newspaper publications. Other sources were Google Search Engine, including Index Mundi, OECD, UK Office for National Statistics, and electronic databases of the World Bank, MacroTrends, Country Economy.com, Trading Economics and Bank of Ghana, among other significant sources. Respective data on selected global regions and their indebtedness to China, leading African economies with significant borrowing from China, debt-to-GDP ratios for forty-four selected global economies during 2019 and 2020; respective data on Ghana’s annual GDP values and growth rates from 1960 through 2020, annual public debt values from 1986 through 2020 and annual public expenditure values from 1983 through 2020 were collected and used in the research. Descriptive statistics and regression models were used to describe the research variables and to evaluate their behaviour over the stated time frame on total economic output. The research revealed that significant government borrowing has become a common universal practice in recent fiscal years. The COVID-19 pandemic had devastating effects on most global economies, including Ghana, during the 2020 fiscal year. However, the Ivory Coast, Djibouti, Mauritania, Gabon, Tunisia, Gambia and India demonstrated robustness and resilience in the management of their respective economies and recorded decreases in their respective debt-to-GDP ratios compared to 2019. Ghana’s debt stock increased by US$16.72 billion from 2013 to 2016 and US$21.12 billion from 2017 to 2020. The respective average debts per head during 2016 and 2020 were US$1,102.64 and US$1,690.38. Findings from the research revealed a positive and significant relationship between Ghana’s public debt and GDP (coefficient value = 1.5074212; p = 0.000, p < 0.05) and a positive but non-significant relationship between public expenditure and GDP (coefficient value = 4.39162947; p = 2.989, p > 0.05). Public debt accounted for about 89.26% of the variation in GDP from 1986 through 2020, while public expenditure accounted for nearly 92.89% of the variation in GDP from 1983 through 2020. Ghana’s estimated growth rate for 2020 (0.88%) remained the lowest since 1984. The statistical analysis confirmed and validated the effect of public debt on GDP, called for fiscal consolidation to improve public spending and debt accumulation, and the need for revenue mobilisation strategies to be improved, strengthened and practically implemented to narrow the gap in the annual budget funding amount (ABFA). The study revealed pervading challenges to the effective management of the Ghanaian economy during 2020 and the essence of instituting prudent and pragmatic measures to mitigate foreseen and unforeseen external and internal economic shocks to assure comparative economic management success in subsequent fiscal periods, and to effectively douse the stoking flames of generational debt.