This paper examines Ghana’s experience with external debt and debt relief measures, specifically, Ghana's experience with the Highly Indebted Poor Country (HIPC) initiative and the relevance to poverty reduction. The Ghana government’s attempt to improve its record on social development led to the HIPC initiative in February of 2001. The HIPC initiative is expected to free significant budgetary resources for Ghana’s poverty reduction strategy, hence enabling the country to implement the development goals set out in the PRSP. The paper examines the performance of the social sector reforms within the context of the Poverty Reduction Strategy Paper (PRSP). It must be stressed that the implementation of social reform programmes to solve these problems requires additional resources to those resources that are currently projected from domestic and donor sources. There is likely to be a resource-financing gap in the implementation of Ghana’s social development programmes, especially as it relates to expenditure. Indicatively, Ghana would require more money to implement social policies to alleviate poverty. A critical aspect of the paper would look at how sustainable Ghana’s debt is. Specifically, the paper would look at the extent to which a critical component of the debt, the debt service payable, is reduced so as to make Ghana’s debt service to GDP ratio 2% from year to year. And within the context of poverty reduction, the reduction in debt service payable would be

Full Text : PDF

  1. Abiad, A., and Baig, T., 2005, Underlying Factors Driving Fiscal effort in Emerging Market Economies, IMF Working Paper, WP/05/106, June. 
  2. Addison, T., 2001, “Do Donors Matter for Institutional Reform in Africa?” World Development, Volume 29, Issue 11, November, pp. 1787-1802
  3. Allen, T., and Weinhold, D., 2000, “Dropping the Debt for the New Millennium: Is it Such a Good Idea?” Journal of International Development, Volume 12, pp.857-875. 
  4. Baffoe-Bonnie, J., 2004, “Dynamic Modelling of Fiscal and Exchange Rates Policy Effects in a Developing Country: A Non-Structural Approach”, Journal of Economic Studies, February, Vol. 31, Issue 1, pp.57-75.
  5. Baliamoune, M.N., 2004, On the Measurement of Human Well Being: Fuzzy Set Theory and Sen’s Capability Approach. Available on:, February 2004, Research Paper No. 2004/16.
  6. Bangura, S., Kitabare, D., and Powell, R., 2000, External Debt Management in Low-Income Countries, IMF Working Paper WP/00/196, Dec.
  7. Barretta, C.B., and McPeak, J.G., 2004, Poverty Traps and Safety Nets, June.
  8. Beaugrand, P., 2004, “And Schumpeter Said, “This is How Thou Shalt Grow”, The Further Quest for Economic Growth in Poor Countries, IMF (2004), March, International Monetary Fund.
  9. Bhandhari, J.S., Ul Haque, N., and Turnovsky, S.J., 1989, Growth, Debt and Sovereign Risk in a Small Open Economy, Policy, Planning and Research Working Papers.
  10. Birdsall, N., Williamson J., and Deese, B., 2002, Delivering on Debt Relief: From IMF Gold to a New Aid Architecture, Centre for Global Development, Chapter 5, pp. 80-82. 
  11. Boreinsztein, E., 1990, “Debt Overhang, Credit Rationing and Investment?” Journal of Development Economics, Volume 32, pp 315-335.
  12. Brooks, R., Mariano, C., et al., 1998, “External Debt Histories of Ten Low-Income Developing Countries: Lessons from their Experience”, IMF Working Paper WP/98/72.
  13. Callaghy, T., 2002, Innovations in the Sovereign Debt Regime, Background Paper, OED, Washington D.C.
  14. Christensen, J., 2004, Domestic Debt Markets in Sub-Saharan Africa, IMF WP/04/46.
  15. Christiansen, L., Demery, L., and Paternostro, S., 2002, Growth, Distribution and Poverty in Africa: Messages from the 1990s, the World Bank, June.
  16. Cordella, T., Ricci, L.A., and Ruiz-Arranz, M., 2005, Debt Overhang or Debt Irrelevance? Revisiting the Debt-Growth Link, IMF Working Paper WP/05/223.
  17. Cohen, D., 1993, ”Low-Investment and Large LDC Debt in the 1980”, American Economic Review, Volume 83, No. 1, March-June, pp. 437-449.
  18. Clements, B., Bhattachaya, R., and Nguyen, T.Q., 2003, External Debt, Public Investment, and Growth in Low-Income Countries, International Monetary Fund, WP/03/249.
  19. Clements, B., Bhatacharya, R., and Nguyen, T.Q., 2005, Can Debt Relief Boost Growth in Poor Countries? International Monetary Fund, April.
  20. Cohen, D., 1993, “Low Investment and Large LDC Debt in the 1980s”, American Economic Review, Vol. 83, No. 4, June, pp. 437-449.
  21. Conenc, A.H., 2005, Comparison of Debt Financing Between International and Domestic Firms: Evidence from Turkey, Germany and UK, International Journal of Managerial Finance, January, Vol. 1, Issue 1, pp.49-68.
  22. Cordella, T, Dell’ Ariccia G., and Kletzer, K.M., 2003, Macroeconomic Changes in Low Income Countries: Conditional Aid, Sovereign Debt, and Debt Relief, October 23-24.
  23. Creane, S., Goyal, R., Mobarak, M.A., and Sab, R., 2004, Financial Sector Developments in the Middle East and North Africa, IMF Working Paper WP/04/201, October.
  24. Dercon, S., 2002, Shocks and Poverty During Economic Reform: Evidence from Ethiopia, Department of Economics and Jesus College, Oxford, March.
  25. Dercon, S., ed., (2004), Insurance Against Poverty (Oxford University Press).
  26. Dercon, S., and Hoddinott, J., 2003, Health, Shocks and Poverty Persistence, World Institute for Development Economics Research, Helsinki,  UNU/WIDER Discussion Paper No. 2003/38.
  27. Deshpande, A., 1997, “The Debt Overhang and the Disincentive to Invest”, Journal of Development Economics, Vol. 52, pp. 169-187.
  28. Dev, S.M., 2002, Pro-Poor Growth in India: What Do We Know About the Employment Effects of Growth 1980-2000%, Centre for Economic and Social Studies, Hyderabad, March, Working Paper 161.
  29. DFID: Department for International Development, 2005, Pro-Poor Growth in the 1990s: Lessons and Insights from 14 Countries, DFID, June.
  30. Drudi, F., and Giordani, R., Default Risk and Optimal Debt Management, Journal of  Banking and Finance, Vol. 24, Issue 11, pp. 1849-1852.
  31. Easterley, W.R., 1999, How Did Heavily Indebted Poor Countries Become Highly Indebted?: Reviewing 2 Decades of Debt Relief, Policy Research Working Paper 2225 (November), Washington, D.C., World Bank, also available on: (Sept. 1999).
  32. Easterley, W., 1999a, How Did Heavily Indebted Poor Countries Become Highly Indebted? Reviewing Two decades of Debt Relief, Mimeo, World Bank, September 1999. 
  33. Easterly,W., 2002, “How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief”, World Development, Volume 30, Issue 10, October, pp. 1677-1696. 
  34. ECA 1999, Economic Commission for Africa, UNECA.
  35. Economic Commission for Africa (ECA), 2003, Economic Report on Africa, 2003: Accelerating the pace of Development, Addis Ababa, Ethiopia.
  36. Edwards, S., 2002, “Debt Relief and Fiscal Sustainability”, NBER Working Paper No. 8939, Cambridge, Massachussettes, NBER.
  37. Eichengreen, B., Hausmann, R., and Panizza, U., 2003, Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not The Same and Why it Matters, NBER Working Paper No. 10036, October.
  38. Elbers, C., Cunning, J.W., and Kinsey, B.H., 2003, Growth and Risk: Methodology and Micro Evidence, Timbergen Institute Discussion Paper 2003-068/2.
  39. Faini, R., and Gressani, D., 1998, External Debt Management and External Debt Burden: The Case of the Phillipines, Review of Development Economics, Vol.2, June, pp. 123-139.
  40. Fuentes, R., 2005, Poverty, Pro-Poor Growth and Simulated Inequality Reduction, UNDP Human Development Report Occasional Paper 2005/11.
  41. Fouad, M., Maliszewski, W., Hommes, H.M., Petri, M., and Soderling, L., 2007, Public Debt and Fiscal Vulnerability in the Middle East, January, IMF Working Paper WP/07/02.
  42. Gunter, B.G., 2002, “What’s Wrong with the HIPC Initiative and What’s Next?”, Development Policy Review, Volume 20, No. 1, pp.5-24.
  43. Greenhill, R., 2002, The Unbreakable Link: Debt Relief and the Millenium Development goals, Jubilee Research at New Economics Foundation, London.
  44. Gubbins, N., 1991, “Foreign Currency Loans- A Credible Borrowing Alternative?” Journal of Property Finance, Vol. 2 No. 1.
  45. Happe, N., Hussain, M., and Redifer, L., “Absorbing Shocks”, Finance and Development, December, pp.24-27.
  46. Hennessy, C.A., 2004, “Tobin’s Q Debt Overhang, and Investment”, The Journal of Finance, Vol. LIX, 93.
  47. Hermes, Niels, and Lensink, R., 2001, “Capital Flight and the Uncertainty of Government Policies”, Economic Letters, Vol. 71, No. 3, 2001, pp. 377-381.
  48., Critique of the HIPC Initiative, Action, June 2002, Updated June 2002.
  49., Daseking, C., and Joshi, B., 2005, Debt and New Financing in Low-Income Countries: Looking Back, Thinking Ahead, IMF, February. 
  50. Klein, M.U., Ways out of Poverty: Diffusing Best Practices and Creating Capabilities. Perspectives on Policies for Poverty Reduction, World Bank Policy Research Paper 2990, March 2003.
  51., Epaulard, A., Macroeconomic Performance and Poverty Reduction, IMF Working Paper, April 2003, WP/03/72
  52. May 10-11 2001, Macroeconomic Stability, Growth and Poverty Reduction, Noguchi Workshop, Accra, Ghana.
  53., CEPA, 2004, Selected Economic Issues. 
  54., (September 2000), Pettifor, A., and Garrett, J., 2000, The G7, IMF and World Bank- Globalization and Debt. 
  55.  Ashong, S.N., Macroeconomic Framework for Poverty Reduction within the Context of Debt Relief: The Case of Ghana, CEPA, Ghana, 17-18 August 2001.
  56. (June 30, 2004), HIPC offers no solution. 
  57., Ghana Questions HIPC, 12th June 2003.
  58. Agenor, Pierre-Richard, Izquierdo, A., and Fofack, H., The Integrated Macroeconomic Framework for the Analysis of Poverty Reduction Strategies
  59. (April 2000), OXFAM International, Debt Relief: Still Failing the Poor.
  60.  (August 2001) Dijkstra, G., and Hermes, N., The Uncertainty of Debt Service Payments and Economic Growth of Highly Indebted Poor Countries: Is there a Case for Debt Relief?
  61. (17-18th August 2001) Gunter, B.G., Does the HIPC Initiative Achieve Its Goal of Debt Sustainability.
  62. (April 2002) Birdsall, N., Claessens, S., and Diwan, I., Will HIPC Matter? The Debt Game and Donor Behaviour in Africa, Discussion Paper Series, Centre for Economic Policy Research, April 2002.
  63. (November 2003), Supporting Economic Justice Campaign Worldwide.
  64., (June 30, 2004), Japan Re-states Position on HIPC. 
  65., Wachtel, P., 1998, Current Account Balances and External Debt in Transition Economies: Lessons for Central Asia, June.
  66., March 1, 2002, Ghana Reaches Decision Point under Enhanced HIPC Initiative.
  67., June 12, 2001 Ghana: Enhanced Heavily Indebted Poor Country (HIPC) Initiative-Preliminary Document.
  68.  Epoulard, A., Macroeconomic Performance and Poverty Reduction, IMF Working Paper, April 2003, IMF Working Paper WP/03/72
  69.,  Fedelino, A., Alina, K., Fiscal Sustainability in African HIPC Countries: A Policy Dilemma? IMF Working Paper No. 03/187, September 1, 2003
  70. , 30th January 2003, Nunnelley, B., Weber D., MacDonald G., Jesse J., Sajkunovic, M., The HIPC Initiative/PRSP Process – Are Relief of Poverty, Debt and Public Finances being Achieved?
  71., Hjertholm, P., (21 March 1999), Analytical History of Heavily Indebted Poor Country (HIPC Sustainability Targets.
  72.  (August 2001), Gunter, B.G., Does the HIPC Achieve its Goal of Debt Sustainability?, Paper Presented at Wider/UNU Conference on Debt Relief, Helsinki, Finland, 17-18 August 2001, pp. 15-16.
  73.  (June 15 2004), IMF and IDA, Enhanced Heavily Indebted Poor Countries’ (HIPC) Initiative Completion Point Document, p. 35.
  74. (17-18 August 2001), Muwanga-Zake and Ndhaye, S., The HIPC Debt Relief Initiative. 
  75., Oppong, F., 20067, Fiscal Policy and Private Consumption in Ghana.
  76. (April), World Bank and IMF. 2001a. The Challenge of Maintaining Long-Term Debt Sustainability.
  77. IMF  2002, The Enhanced HIPC Framework and the Achievement of Long-Term External Debt Sustainability, IMF Paper, Available on:
  78., Kasekende, L., 2005, Capital Flows and Current Account Sustainability in African Economies, United Nations Economic Commission in Africa, October, 2005.
  79. IMF, 2002, “Review of Key Factors of the Poverty Reduction and growth Facility – Staff  Analyses”, IMF Paper No. SM / 02 / 51, Supplement, Washington, IMF. 
  80. Iyoha, M.A., 1997, ‘An Econometric Study of Debt Overhang, Debt Reduction, Investment and Economic Growth in Nigeria, Working Paper (Benin City, Nigeria, Department of Economics and Statistics, University of Benin. 
  81. Hunte, K.C., 2002, “Debt Relief Access: Some Indicators in the HIPC Initiative”, Savings and Development, Quarterly Review, No. 3, XXVI, pp. 277-285. 
  82. IMF, 2002, ‘Assessing Sustainability’, Prepared by the Policy Development and Review Department, in Consultation with the Fiscal Affairs, International Capital Markets, Monetary and Exchange Affairs, and Research Department, May 28. 
  83. Khan, M.H., 2002, When is Economic Growth Pro-Poor? Experiences in Malaysia and Pakistan, IMF Working Paper WP/02/85, May.
  84. Kletzer, K.M., and Wright, D.B., 1998, Soverign Debt as Intertemporal Barter, University of California, May.
  85. Klump, R., and Bonschab, T., 2004, “Operationalising Pro-Poor Growth”, A Country Case Study on Vietnam, DFID and The World Bank, October.
  86. Krassowski, A., Development and the Debt Trap: Economic Planning and External Borrowing in Ghana, Overseas Development Institute, London, pp.141-147
  87. Krueger, A.O., 2005, The Challenge of Promoting Poverty Reduction, Lecture Presented at the Annual Boehm-Bawerk, University of Innsbruck, Nov. 17.
  88. Krugman, P., “Financing versus Forgiving Debt Overhang”, Journal of Development Economics”, vol. 29, pp.253-268.
  89. Lane, P.R., 2004, ‘Topics in Macroeconomics, Volume 4, Issue 1 2004, Article 1, Empirical Perspectives on Long-Term External Debt, p.3.
  90. Lensink, R., and Morrisey, O., 2000, “Aid Instability as a Measure of Uncertainty and the Positive Impact of Aid on Growth”, The Journal of Development Studies, Volume 36, No. 3, pp. 31-49.
  91., August 2003, Moss T.J., and Chiang, H.S., Issue Paper on Debt Sustainability: The High Costs of High Debt in Poor Countries: Growth, Policy Dynamics, and Institutions. Centre for Global Development.
  92., The Impact of External Indebtedness on Poverty Reduction in Low-Income Countries, IMF Working Paper, March 2006, Loko, B., Mlachila, M., Nallari, R., and Kalonji, K., 
  93. , CEPA 2003, Managing an Economy in an HIPC Constrained Environment.
  94.  (July 2004), Ghana: Poverty Reduction Strategy Annual Progress Report, IMF Country Report No. 04/07 (July 2004).
  95.  Tsikata, Y.M., 2001, Owning Economic Reforms: A Comparative System of Ghana and Tanzania, WIDER Discussion Paper 2001/53, UNU/WIDER, Helsinki. 
  96. Islam, R., and Wetzel, D.L., 1991, The Macroeconomics of Public Sector Deficits: The Case of Ghana, Policy, Research, and External Affairs Working Papers, May, WPS 0672.
  97. Jeanne, O., and Guscina, A., 2006, Government Debt in Emerging Market Countries: A New Data Set, IMF Working Paper WP/06/98, April.
  98. John, R.I., and Bennett, S.C., 1997, “The Use of Fuzzy Sets for Resource Allocation in an Advance Request Vehicle Brokerage System – A Case Study” (in Case Oriented Papers), The Journal of the Operational Research Society, Vol. 48, No. 2, Feb., pp. 117-123.
  99. Koeda, J., 2006, A Debt Overhang Model for Low-Income Countries: Implications for Debt Relief, IMF WP/06/224.
  100. Kovrinjnykh, N. and Szentes, B., 2005, Competition for Default,
  101., August. 
  102. Leigh, D., and Olters, Jan-Peter, 2006, Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy: Lessons from Gabon, IMF Working Paper WP/06/193.
  103. Leung, H.M., 2003, “External Debt and Worsening Term Business Cycles in Less Developed Countries”, Journal of Economic Studies, Vol. 30, No. 2, pp. 155-168.
  104. Levy, L., and Levy, A., 1998, The Management of Foreign Exchange reserves: Balance of Payments and External Debt Considerations: The Case of Israel, The Maurice Falk Institute  for Economic Research in Israel, Jerusalem, Discussion Paper No. 98.07, October. 
  105. Limbs, J., and Racier, R., 2005, The Overhang Hangover, World Bank Policy Research Working Paper 3673, August. 
  106. Lopes, P., 2002, A Comparative Analysis of Government Social Spending Indicators and their Correlation with Social Outcomes in Sub-Saharan Africa, IMF Working Paper, WP 02/176.
  107. Lucas, R.E., 1988, "On the Mechanics of Economic Development," Journal of Monetary Economics, Vol. 22, No. 1, July, 3-42. 
  108. Masud, N., and Yontcheva, B., 2005, Does Foreign Aid Reduce Poverty? Empirical Evidence from Non-Governmental and Bilateral Aid, IMF Working Paper WP/05/100.
  109. McKay, A., and Aryeetey, E., 2004, Operationalising Pro-Poor Growth”, A Country Case Study on Ghana, A Joint Initiative of DFID and The World Bank. 
  110. Mishra, P., and Newhouse, D., 2007, Health Aid and Infant Mortality, IMF Working Paper, WP/07/100. 
  111. Mehl, A, and Reynaud, J., 2005, The Determinants of Domestic Original Sin in Emerging Market Economies, European Central Bank Working Paper Series No. 560, Dec.
  112. Morrissey, O., Lloyd, T., and Opoku-Afari, M., 2004, Real Exchange Rate Response to Capital Inflows: A Dynamic Analysis for Ghana, School of Economics, University of Nottingham.
  113. Murdoch, J., 1995, “Income Smoothing and Consumption Smoothing”, Journal of Economic Perspectives, Vol. 9, Summer, pp.103-14.
  114. Mutasim, M. and  Abdelmawla, A., 2005, “The Impact of External Debt on Economic Growth: An Empirical Assessment of the Sudan: 1978-2001”, Eastern Africa Social Science Research Review, Volume 21, Number 2, June 2005, pp. 53-66.
  115. Ndikumana, L., 2000, “Financial Determinants of Domestic Investment in Sub-Saharan Africa: Evidence from Panel Data”, World Development, Volume 28, No. 2, pp. 381-409. Pergamon-Elsevier Science Ltd., Oxford. 
  116. Nelson, R.R., and Phelps, E.S., 1966, “Investment in Humans, Technological Diffusion and Economic Growth”, American Economic Review 65 (2), pp.69-75. 
  117. Ngassam, C., 1992, Factors Affecting the External Debt-Servicing Capacity of African nations: An Empirical Investigation, Department of Finance, College of Business and Economics, University of Delaware. 
  118. Offerdal, E.C., 1996, “The Response of Investment and Growth to Adjustment Policies”, Finance and Development, available online:
  119. Omotoye, R.O., 2006, “Sub-Saharan Africa’s Debt Crises: Analysis and Forecast Based on Nigeria”, Managerial Finance, Vol. 32, Issue 7, pp.606-620.   
  120. Osei, B., 2000, The Burden of Debt-Service Payment under Structural Adjustment in Ajayi, S.I. and Khan, M.S., 2000, External Debt and Capital Flight in Sub-Saharan Africa, International Monetary Fund.
  121. Osinubi, T.S., and Olateru, O.E., 2006, “Budget Deficits, Eternal Debt and Economic Growth in Nigeria”, Applied Econometrics and International Development, EuroAmerican Association of Economic Development, Volume 6, Issue 3.
  122. Paddisson, O., and Mitiku, 2001, “An Empirical Analysis of Higher Education and Growth”, UNECA, Nairobi. Presented in Ad-hoc Expert Group Meeting.
  123. Pallister, J., and Isaacs, A., 2003, Oxford Dictionary of Business, Third Edition, p. 461.
  124. Patillo, C., Poirson, H., and Ricci, L.A., 2002, External Debt and Growth, International Monetary Fund, Washington DC.
  125. Patillo, C., Poirson, H., and Ricci, L., 2004, What are the Channels through which External Debt Affects Growth? International Monetary Fund, IMF Working Paper WP/04/15.
  126. Qizilbash, M., 2002, “A Note on the Measurement of Poverty and Vulnerability in the South African Context”, Journal of International Development, 14:757-772. Published Online in Willey InterScience (
  127. Rosenzweig, M.R., and Binswanger, H.P., 1993, “Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments”, The Economic Journal, Jan., pp. 56-78.
  128. Sahay, R., 2004, Stabilization, Debt, and Fiscal Policy in the Carribean, IMF, Preliminary draft, June 8.
  129. Scott, G., 2000, “Market-Based Debt Reduction Alternatives with Reference to Sub-Saharan Africa”, The South African Journal of Economics, Volume 68, No. 4, December, pp. 759-785.  
  130. Shuanglin, L., and Sosin, K., 2001, “Foreign Debt and Economic Growth”, Economics of Transition, Volume 9, No 3, pp. 635-656.  
  131. Stambuli, K., 2000, A Non-Linear Macroeconomic Impact Model of External Debt Cancellation in Severely Indebted Low Income Country Economies, PhD. Thesis, WUSTL.
  132. Sundaresan, S., and Wang, N., 2006, Dynamic Investment, Capital Structure, and Debt Overhang, Nov.,
  133. Tsekpo, A., and Jebuni, C.D., 2004, Budget Implementation and Poverty Reduction in Ghana, July. Available at:
  134. Vamvakidis, A., 2007, External Debt and Economic Reform: Does a Pain Reliever Delay the Necessary Treatment? IMF Working Paper WP/07/50. 
  135. Warnock F., and Burger, J.D., 2003, “Diversification, Original Sin, and International Bond Portfolios”, FRB International Finance Discussion Paper No. 755, April, USA.
  136. Were, M., 2001, The Impact of External Debt an Economic Growth and Private Investment in Kenya: An Empirical Assessment in:
  137. World Bank 1993, “The East Asian Miracle-Economic Growth and Public Policy”.
  138. World Bank 2003, Contracting a Knowledge based Society, WB Report.
  139. Yamashita, M., and Khachi, A.K., 2003, Vector Autoregressive Analysis of the Validity of the Two-gap Model for Nine Large Recipients of Japan’s ODA, Economic and Social Research Institute, Cabinet Office, Japanese Government, June.
  140. Zhang, Y., and Wan, G., 2006, Poverty, Pro-Poor Growth and Mobility: A Decomposition Framework with Application to China, UN University, Research Paper No. 2006/154.