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Ghana's Public Debt and Financial Development

六甲台論集. 国際協力研究編

16

25-54

神戸大学大学院国際協力研究科

2015-03

2015-04-15

This study looks at the evolution of the total public debt of Ghana from 1991-2013. Following this, the study further shows that external debt, which Ghana was highly dependent on, gradually declined after the benefits derived from HIPC. Consequently, domestic borrowing outpaced external borrowing as government borrowing from the banks began to increase. The study then analyzes the effects of public debt on financial development in Ghana. Specifically, we examine the role increased credit to government has on the profitability and efficiency, proxies for financial development, of the banks in Ghana. While some advocate the “lazy bank” effect of public debt, we find that public debt increases from 2004-2013 has had a neutral effect on the profitability and efficiency of the banks in Ghana. Overall, we find evidence for neither the “lazy bank” view nor the “safe asset” view of the banks in Ghana. The results in the study seem to be more consistent with the “risk diversification” view. The study therefore indicates that in spite of the structural problems in the economy of Ghana, it does not seem to hurt the financial sector at this moment.

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