Effects Of Public Debt On Economic Growth

1875 WordsApr 4, 20168 Pages
Most research has shown that the effects of public debt on economic growth differs across countries; depends on country-specific factors and institutions such as the level of fiscal imbalances, the level of debt sustainability, the level of financial deepening, macroeconomic stability, and political environment. In response to the financial and economic crisis of 2008/09, the accumulation of public debt and its effects on economic growth have received renewed attention among many economists and policy makers. Conventionally, a good measure of the sustainability and accumulation of a country’s debt is to consider the debt level to the overall economic output of the country measured by the Gross Domestic Product (known as the Debt-to-GDP ratio). Data released by the Bank of Ghana recently showed that Ghana’s debt stock rose to GH¢ 97.2billion (or US$25.6billion) in December 2015, equivalent to 72.9% of GDP. Out of this, total external debt amounted to GH¢57.8billion (43.4% of GDP) and domestic debt was GH¢39.4billion (29.5% of GDP). Therefore, based on Ghana Statistical Service population projections as at the end of 2015, every Ghanaian citizen, including children owe about GH¢3,512.81 in government debt compared to GH¢872.99 as of 2011. As government runs budget deficits, mainly leading to the rise in the debt level; servicing the debt comes with severe consequences. Notwithstanding the methodology, assumptions, and approach, the growing bulk of research shows that
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