DSN NEWS DESK
Ghana is depending more heavily on borrowing within its own economy to fund government spending and manage its growing debt burden, according to the World Bank. This development is part of a wider pattern seen across many low-income countries.
In its International Debt Report 2025, the World Bank explains that governments in low-income economies are increasingly raising money at home rather than relying on foreign loans. This shift is largely driven by the need to finance expanding budgets while avoiding the risks that come with borrowing in foreign currencies, such as sharp exchange rate swings.
The report places Ghana among a group of “frontier economies” that have made notable progress in building stronger domestic debt markets over the past decade. Frontier economies are countries that are not fully developed markets but have more advanced financial systems than most low-income states.
Domestic debt rising steadily
Between 2014 and 2024, domestic public debt in countries under the Low-Income Country Debt Sustainability Framework grew rapidly. On average, domestic debt increased from about 8 percent of GDP to 17 percent of GDP. Importantly, nearly half of this rise happened before the COVID-19 pandemic, suggesting that the trend was driven more by long-standing fiscal pressures than by temporary global shocks.
The World Bank notes that many governments, including Ghana’s, faced slow growth in tax revenues while needing to spend more on infrastructure, social services, and development projects. Domestic borrowing therefore became a practical way to bridge these financing gaps.
According to the report, borrowing locally has helped countries manage widening budget deficits without exposing themselves too heavily to foreign exchange risk. When governments borrow in foreign currencies, a depreciation of the local currency can sharply increase debt costs. Domestic borrowing reduces that danger.
Ghana’s bond market progress
A key part of Ghana’s domestic borrowing strategy has been the development of its local bond market. The World Bank highlights Ghana as one of the few low-income frontier countries able to issue local-currency bonds with maturities exceeding 15 years.
This is significant because longer-term bonds reduce the pressure on governments to frequently refinance debt. Extending maturities gives governments more breathing space and improves overall debt management.
Across low-income countries generally, domestic debt is now mostly raised through market-based instruments. By the end of 2024:
-
About 59 percent of domestic debt was issued through treasury bills and treasury bonds
-
24 percent came from loans and central bank financing
-
The remaining 17 percent consisted of payment arrears
Ghana closely follows this pattern, with an increasing share of government borrowing coming from treasury instruments sold on the domestic market. The World Bank also observes that this move toward market-based borrowing has improved debt transparency in some countries.
New risks emerging
Despite these benefits, the report warns that rising domestic debt also creates fresh challenges. Although much of the existing domestic debt stock in 2024 was medium- to long-term, borrowing patterns began to shift in 2025.
New domestic borrowing increasingly relied on short-term instruments. The report estimates that 41 percent of new domestic debt issued in 2025 had short maturities, including funds borrowed from central banks. This raises concerns about refinancing risks, as governments may need to repay or roll over debt more frequently, often at higher interest rates.
The World Bank cautions that while domestic borrowing reduces exposure to currency volatility, it can increase interest rate pressures and refinancing risks—especially in countries with limited fiscal flexibility.
Currently, the average maturity of newly issued longer-term domestic debt in low-income countries is about four and a half years. For frontier economies like Ghana, it is slightly longer at around five years, but still shorter than what is ideal for financing long-term development projects.
Looking ahead
The World Bank says it will continue to assist countries such as Ghana in strengthening domestic debt markets, with greater emphasis on capital market development, better risk management, and sustainable borrowing strategies.
As Ghana works to stabilise its economy and rebuild investor confidence, the report stresses the importance of closely monitoring domestic debt growth. While borrowing at home has eased foreign exchange risks, careful management of debt maturities and interest costs will be crucial to maintaining long-term debt sustainability.
