Effects of Public Debt on Public Infrastructure Investment in Ghana

Abstract

As a nation, Ghana's mounting public debt has been a major issue throughout its economic history. Over the last three decades, Ghana's public debt position has deteriorated, with the government acquiring more and more debt and growing increasingly at risk of default. Ghana's national debt is so high that the country's infrastructure projects have not benefited from the government's heavy expenditure and borrowing. These two cases emphasize the need for more research on the connection between public debt and infrastructure expenditure by the government. In this study, we take a fresh look at the correlation between debt and investment in Ghana. The inputs to a second study utilizing the NARDL cointegration technique, which looked at how Ghana's public debt affects investment, were the findings of the unit root tests. The researcher of the thesis estimates a positive correlation between the amount of foreign debt and the formulas for both short run and long run investments. Long run components of the public investment model are shown to be interdependent using the Bounds test. The cointegration suggests that changes in the level of foreign debt have a more significant effect on public infrastructure investment than changes in the level of domestic debt. This result shows that Ghana's foreign debt is contributing to the funding of the country's public infrastructure initiatives. Policymakers, according to this idea, should make sure debt is contracted for economic development via capital creation rather than for egotistical or political objectives, and that the government invests borrowed money in economically productive initiatives to boost production and bring down the debt load.