Prof. Peter Quartey Advises Caution for Government on Returning to the Capital Market

Prof. Peter Quartey Cautions Government Against Relying on Capital Market Loans

Professor Peter Quartey, the Director of the Institute of Statistical, Social, and Economic Research (ISSER) at the University of Ghana, has urged the government to reconsider its decision to return to the capital market for loans. Speaking during his inaugural lecture as a Fellow of the Ghana Academy of Arts and Sciences in Accra on Thursday, Prof. Quartey emphasized that the government should prioritize multilateral financing and aggressively boost domestic revenue generation to support the nation’s development goals.

The lecture, titled “Debt, Investment, and Growth in Ghana: Did We Borrow to Consume?”, delved into critical discussions surrounding Ghana’s national debt and the sustainability of its development financing strategies. The event, which attracted policymakers, economic professionals, students, and industry experts, provided a platform for Prof. Quartey to offer his expert analysis on the country’s current financial predicament.

During the lecture, Prof. Quartey expressed concern over the government’s plan, as revealed by Finance Minister Dr. Cassiel Ato Baah Forson in the 2025 budget presentation, to cautiously re-enter the domestic bond market for borrowing. While acknowledging the need for funding, Prof. Quartey warned that excessive reliance on loans from the capital market has proven to be both costly and unsustainable for the nation’s long-term development.

Prof. Quartey pointed out that Ghana’s debt-to-GDP ratio, which stood at 42.9% in 2013, was well below the International Monetary Fund’s (IMF) debt sustainability threshold of 50%. However, the country’s debt has been steadily rising, reaching a record high of 82.9% in 2023 before slightly decreasing to around 76% in 2024. The professor questioned the government’s urgency in returning to the capital market, especially given the escalating debt burden and the high-interest rates that often accompany such loans. He argued that borrowing from the capital market without utilizing the funds for productive investments has led to unsustainable debt accumulation.

“Why the rush to return to the capital market?” Prof. Quartey asked, stressing that borrowing excessively from this source, especially for non-productive ventures, has contributed to the country’s current financial challenges. He emphasized the importance of borrowing at reasonable interest rates, highlighting that while the capital market may appear to offer a quick solution, it is ultimately a more expensive option for financing development.

Prof. Quartey further recommended that the government explore more affordable sources of financing, such as multilateral loans and domestic revenue generation, which he described as less costly alternatives. He warned against the ongoing trend of borrowing from Eurobonds and other capital market instruments, arguing that these loans have become unsustainable for Ghana’s financial health. “We need to move away from these costly loans. There are cheaper alternatives,” he said.

The professor also critiqued the practice of using a significant portion of borrowed funds to cover public sector salaries and interest payments, particularly since 2015. He explained that this pattern of borrowing, followed by excessive allocation to recurrent expenditures rather than productive investments, has exacerbated Ghana’s debt crisis. According to Prof. Quartey, borrowing for consumption, rather than for investment in economic growth, has put the country in a precarious financial position.

Emerita Prof. Takyiwaa Manuh, Vice President of the Arts Section of the Ghana Academy of Arts and Sciences, also weighed in on the debt issue, echoing Prof. Quartey’s concerns. She aptly noted, “The debtor must eat, but the debtor must be careful of what they eat.” Prof. Manuh expressed confidence that Prof. Quartey’s lecture would encourage further discussion on improving Ghana’s financial management. She called on policymakers to incorporate academic insights into practical solutions that would help address the country’s fiscal challenges and improve the living standards of the population.

Prof. Quartey concluded his lecture by reiterating the importance of taking a more balanced and sustainable approach to Ghana’s development financing. He cautioned the government against returning to the capital market for short-term solutions and encouraged more strategic efforts to increase domestic revenue and access cheaper multilateral funding. In doing so, he argued, Ghana can work toward a more stable and resilient financial future.

Prof. Quartey’s lecture highlighted the need for urgent reform in Ghana’s borrowing practices, advocating for a shift away from expensive loans in favor of more sustainable and productive funding sources. His insights serve as a timely reminder of the financial risks the country faces and the necessity of responsible borrowing and investment strategies moving forward.