Latest figures from the Bank of Ghana (BoG) reveal that Ghana’s total public debt was GH¢ 20.1billion at the end of May 2011, representing 35.4% of Gross Domestic Product (GDP), down from 39.1% of GDP at the end of 2010.

Given the breakdown of the debt, the Governor of the Bank of Ghana, Kwesi Amissah-Arthur was quick to add that as at the end of May 2011, domestic debt stood at GH¢ 10billion, up from GH¢ 8.3billion in December last year, while the external debt stock rose from $6.3billion in December 2010, to $6.7billion in May 2011.

However, the Ministry of Finance and Economic Planning says the country’s external debt, which was $6.3 billion in 2005, dropped to $2 billion in 2006, following the debt relief under the Highly Indebted Poor Country (HIPC) initiative.

Explaining further, the Minister of Finance and Economic Planning, Dr. Kwabena Duffuor disclosed that under the Prof Mills-led National Democratic Congress (NDC) government, between 2008 and 2010, the debt increased from $4 billion to $6 billion, coming up to 50 per cent, stressing that “even this increase is attributed to the disbursement of a number of loans that were contracted during the New Patriotic Party (NPP) administration”.

According to him, a total of $1.7 billion external loans were contracted in 2007 alone, $2.7 billion in 2008, while in 2009 and 2010 the external loans were $1 billion and $2.7 billion, respectively. On the domestic front, the Minister indicated that a domestic debt equivalent of $4 billion was contracted in 2008, which increased to $4.2 billion in 2009 and $5.6 billion in 2010.

Dr. Duffuor emphasized that the increase in the domestic debt stock between 2009 and 2010 was the result of government’s borrowing from the domestic market to clear the huge arrears left by the previous government. According to the Central Intelligence Agency (CIA), U.SA, the per capita income of the country stood at $2,500 in 2010, while the country’s current minimum wage stands at GH¢3.73.

Comparing Ghana with Nigeria, which total public debt currently stands at N31.4billion, according to the World Bank, Ghana’s Vice President, John Dramani Mahama, who recently led a high-power government delegation to meet with the World Bank Vice President, Obiageli Ezekwesili in Washington mid-June, says he takes good note of the various proposals, including the suggestion that Ghana should consider the possibility of a fiscal responsibility law.

Such a law, if enacted, would guide public expenditure management and complement reforms envisaged by the formation of the Ghana Revenue Authority, which aims to make revenue collection more efficient.

The first challenge is to rein in public expenditure. Ghana’s highly competitive political environment has made large fiscal deficits a common occurrence, even as the current government is trying to repay domestic arrears that have built up over the years.

A high-stake presidential election scheduled for next year is likely to make matters worse, as various constituencies, buoyed by the expected oil revenue, are likely to step up demands for public expenditure, Ezekwesili warned.

Public debt is also sometimes referred to as government debt. It is a term for all of the money owed at any given time by any branch of the government. It encompasses public debt owed by the federal government, the state government, and even the municipal and local government.

Public debt is, in effect, an extension of personal debt, since individuals make up the revenue stream of the government.

Public debt accrues over time when the government spends more money than it collects in taxation, as a government engages in more deficit spending, the amount of public debt increases.

Public debt can be made up of all sorts of different types of debt. A great deal of public debt is external debt, which is money that is owed by the government to foreign lenders, either in the form of international organizations, other governments, or groups like sovereign wealth funds which invest in government bonds.

Public debt is also made up of internal debt, where citizens and groups within the country lend the government money to continue operating. In some ways, this is a lot like lending to oneself, since ultimately the responsibility for public debt falls back on the very people lending money.