Macroeconomic policies and external debt in Ghana: lessons from the Latin American countries

Abstract

Managing external debt in Ghana remains challenging. This thesis examines the relationship between various macroeconomic variables and external debt in Ghana from 1970 to 2020 using the autoregressive distributed lag (ARDL) model. It also takes lessons from the Latin America (Mexico, Argentina, and Brazil) debt crisis and forecasts Ghana's external debt for the next decade (2021-2030) using the autoregressive integrated moving average (ARIMA) and ARIMA with exogenous variables (ARIMAX) models. The thesis finds that budget balance and current account balance are the only macroeconomic variables that have an impact on external debt in Ghana in both the short and long run. Interest rate on domestic debt impacts external debt in the long run, while inflation, real GDP, interest rate on external debt and money growth impact external debt in the short run. The forecasting exercise reveals that external debt will increase by 109.35% and 18.26% by the next decade based on the ARIMA and ARIMAX models, respectively.