**Table 4: Ghana’s Public Debt Dynamics 2018-20**

||**2018**|**2019**|**2020**|
|---|---|---|---|
|Public debt/GDP %<br>|57.9|62.9|78.9|
|Primarydeficit/GDP %<br><br>|1.4|1.7|8.8|
|Real interest rate %(r<sup>c</sup>)<br><br>|6.4|10.5|6.3|
|- Local currency (r<sup>d</sup>)<br>|8.0|8.6|9.1|
|- Foreign currency (r<sup>f</sup>)|4.8|12.5|3.6|
|Realgrowth rate %(g)<br>**_Notes_**: 1 Own calculations based|6.2<br>on Table 2 of the Debt|6.5<br>ustainability Analysis in IMF|0.4<br>2021) The real interest|

**_Notes_** : 1. Own calculations based on Table 2 of the Debt Sustainability Analysis in IMF ( 2021). The real interest rate is a composite of that on local currency and forex debt and includes the impact of currency depreciation on the forex debt stock. See Annex 1.

2. The public sector DSA in IMF (2021) gives public debt on a residency rather than currency basis. For debt dynamics, we need the latter, which was inferred from the contribution of the real exchange rate to the change in the public debt-to-GDP ratio, which by definition, applies only to foreign currency denominated debt.

A month earlier, in January 2017, a “fiscal hole” of 4% of GDP had been discovered following the installation of a new government, attesting to a weak track record on using public resources well. In particular, large fiscal deficits did not seem to be associated with investments that would spur future growth and taxes. The IMF attributed the “fiscal hole” to “significant public spending commitments that bypassed Public Financial Management (PFM) systems”. Improving matters would require implementing “the new government’s intentions to reduce tax exemptions, improve tax compliance and review the widespread earmarking of revenues” (IMF’s February 10, 2017, Press Release 17/43); in short, ensuring the integrity of PFM systems and selecting and executing public investments carefully. Ghana, a star of the post HIPC-MDRI era, had not implemented basic PFM systems even though 10 years had passed since the issuance of its first Eurobond. This was despite discovering oil, with its well-known risks for the political economy.

Ghana's experience also underlines the limited leverage of the IFIs when sovereign countries have access to other sources of money with few questions asked. This points to the importance of shifting the onus on re-attaining public debt sustainability to the country's leaders themselves. But it also places a premium on appropriate analytical frameworks that can form the basis for a deeper and more urgent policy dialogue aimed at preventing crises and increasing the chances of better development outcomes.

As noted earlier, Ghana defaulted on its debt in December 2022. The Ghana experience, similar developments in other LIC DSF countries, and the recognition that the financing landscape had changed dramatically should have encouraged the IMF and the World Bank to take a much bolder approach to the 2017 Review. This should have included a more serious discussion of the underlying causes of external debt distress that emanate from fiscal imbalances and total public debt. Treating unsustainable public debt as both a fundamental cause of debt distress and the focus of corrective policy would then have been logical. That opportunity was missed. We explore this question in greater depth, so it is not missed again.

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