DSF. But in contrast to the 2017 LIC DSF, which, like its earlier incarnation, decomposes the change in the ratio of nominal public debt to GDP, d, during a given year into contributions attributable to primary fiscal deficits, growth rates, interest rates and exchange rates, the calculations here focus directly on pd, r and g as driving the trajectory of d and providing early warning about its sustainability.

Table 3 uses the identity that the current account deficit is the difference between national investment and national saving. It breaks this identity down into a public and private component, demonstrating that public deficits—the difference between public investment and saving—drive the current account deficit and hence external debt dynamics. In Ghana’s case, the central government deficit in line 1 of the table is the main driver of the CAD and therefore of external debt dynamics. Indeed, as the external DSA table in IMF (2021) shows, the rise in external debt-to-GDP between 2019 and 2020 of 5.9 percentage points is almost entirely due to its PPG component, which went up by 5.7 percentage points.

**Table 3: Government Deficit Drives Ghana’s Current Account Deficit 2019-20**

|**Percent of GDP**|**2019**|**2020**|
|---|---|---|
|1. Government deficit|7.2|15.7|
|2. Private deficit|-4.4|-12.6|
|3. Current Account Deficit|2.8|3.1|
|_4. PPG % of external debt_|_89_|_90_|

**_Notes_** : Data from Table 1 and the External DSA in IMF (2021). “Deficit” is defined as investment minus savings. A positive (negative) number in the table refers to a deficit (surplus). Footnote 3 for Table 1 in the IMF report notes that private saving includes public enterprises. But this table shows that the central government deficit is driving public and external debt dynamics.

Table 4 revisits public debt dynamics using the alternative framework. It shows that (r-g) rose to 4 percentage points in 2019 and then widened further in 2020, with the primary deficit ballooning from about 1.5 percent of GDP to 8.8 percent in 2020, indicating Ghana’s public debt was again on an unsustainable trajectory by 2020. The public debt level of 79 percent of GDP in 2020 should have been cause for concern: Ghana had been a market access country for more than a decade by then, financing 66 percent of its public debt from commercial sources. Recall that Russia (1998) and Argentina (2001) suffered major crises when public debt was about 50 percent of GDP.

Table 4 also shows that the primary balance projections in IMF (2016), which showed sizeable surpluses and projected d at 60% in 2020 _prior to the 2017 GDP rebasing_ were unrealistically optimistic. Of course the COVID-19 pandemic contributed to the outsized primary deficit in 2020, but Ghana’s fiscal problems predated this pandemic as evidenced by the discussion of the 2016 DSA above. Based on meetings with policymakers and the private sector with the African Development Bank in February 2017 in which one of the authors participated, Ghana’s strategy for lowering the public debt-to-GDP ratio relied upon revenues from new oil fields and issuing Eurobonds to avoid soaring interest costs in the domestic market, then about 25%, seemingly unmindful of the problems that currency mismatches on the government’s balance sheet would cause. New oil production, the argument went, would increase growth rates, primary surpluses, and forex reserves, and reduce the cedi/dollar exchange rate.

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