The Impact Of External Debts Accumulation On Economic Growth In Ghana

The paper seeks to analyze Ghana's external debt accumulation and its impact on economic growth,in an effort to completely capture its impact on the economy.A careful empirical examination was conducted with information covering 38 years i.e.1980-2017.This period was specifically selected to cover the period after the post-debtrelief era and the external debt stock of Ghana has been on the increase in the past decade.External debt has the potential to promote growth;however,the lack of prudent debt management framework may render it counterproductive.Most literature in this area has often produced conflicting results.Some literature postulates a negative impact of external debt accumulation on economic growth while others predict a positive impact as some also conclude that there is no linkage at all between these two variables.Various theories have been propounded by scholars in an attempt to explain the subject of external debt.The theory includes the dual gap analysis which explained that development is a function of investment and that such investment which requires domestic savings are not sufficient to ensure that development takes place.This paper empirically examines the impact of external debt accumulation on Economic growth in Ghana by using a developed approach on time-series information on Gross Domestic Product,External Debt Stock,External Debt Payments and Exchange Rate from 1980-2017.First,the strategies of Estimation employed inside the paper consist of the Augmented Dickey-Fuller(ADF)test,Vector error correction and Johansen Cointegration evaluation had been used to check for causal relationships among the variables for the duration 1980 to 2017.The second stage results reveal a positive and significant long-run relationship between GDP growth rate and external debt,indicating that external debt contributed to economic growth in Ghana and also there is a bidirectional relationship between external debt and economic development,while debt service has significant negative impact.In summary result of the model showed that external debt has a significant positive relationship with the gross domestic product and debt service has negative impact.This result is consistent with several earlier studies reviewed in the literature that found external debt and gross domestic product to have a positive relationship.Based on these finding,the following recommendations were made to the Ghanaian government1.A structure should be developed to enable Ghana's debt framework identify and manage the trade-offs between future cost and how to mitigate government debt portfolio.2.Managing and Identifying risk involves investigating the financial environment of the revenues and other cash flows accessible to the government to service its borrowings,and selecting a portfolio of liabilities which matches these characteristics as much as possible.Ghana so in that case Government's should implementation debt management approach in line with the targets of lengthening the maturity profile,diversifying the investor base.