TITLE:
An Empirical Analysis of the Sustainability of Public Debt in Ghana
AUTHORS:
Gideon Amankwah, Grace Ofori-Abebrese, Kofi Kamasa
KEYWORDS:
Sustainability, Output Gap, Expenditure Gap, Public Debt, Primary Fiscal Bal-ance, Autoregressive Distributed Lag (ARDL)
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.11,
August
2,
2018
ABSTRACT: Governments have the zeal to meet the developmental
needs of their countries but due to their inability to raise the necessary
revenue to commensurate their expenditure, the fiscal balance of their
countries has deteriorated. The surge in the public debt of Ghana has caused
much anxiety on the sustainability of such fiscal measures. The study is set
out to investigate if Ghana’s debt is sustainable in the long-run and also
ascertain if the solvency condition holds for the country. Secondary data
spanning from 1990 to 2016 was used. The Autoregressive Distributed Lag (ARDL)
method was adopted to estimate the relationship between the variables. The
study found that fiscal policy makers react to rising debt levels by adjusting
primary balance by 0.087% when debt rises by 1%. Since this satisfies the
intertemporal government budget constraint (IGBC) condition it was then
concluded that the debt level of Ghana is sustainable. Government expenditure
and its revenue cointegrate at 5% significance level and a unit increase in
government revenue pushes government expenditure by 0.73%. Also the
expenditures reaction to increase in revenues satisfies the Wald test
restriction a1 = 1,
implying that the solvency condition holds for Ghana. It is recommended to
fiscal authorities to check primary fiscal balance through the business cycle
in order to foster stable and higher economic growth while ensuring debt is
also sustainable.