Debt and Inflation
ERP policies during the 1980s resulted in increased external debts as well as in relatively high inflation rates. Most ERP projects were funded by foreign loans, notably from the IMF. At the same time, the government repeatedly devalued the country's currency to raise producer prices for exports and to encourage production, but devaluation also led to price rises on all other goods as well. ERP attempts to promote production have, at least in the short term, resulted in higher debts and inflation.
World Bank figures show that Ghana's total external debt exceeded US$4 billion by 1991; this figure rose to nearly US$4.3 billion in 1992. The external deficit and requirements for repayments on principal were met through additional loans. The debt figures revealed a strong reliance on official creditors, who accounted for about 92 percent of public disbursed debt, and on concessional funding, which approached 60 percent of total external debt in 1992. In addition, Ghana began to borrow on international capital markets in 1991. Nevertheless, the country's debt service ratio fell at an annual average of 25 percent in 1991 and 1992, reflecting repayment of large IMF obligations and the ending of the government's use of IMF funding at the end of 1991. An additional factor was debt cancellation by a number of leading bilateral creditors totaling US$1.5 billion since 1989.
In the early 1990s, the government was unable to reduce high inflation significantly. Although down from the staggering levels of the early 1980s when inflation hit 123 percent because of drought, inflation in the following six years averaged almost 30 percent. Recovery in agricultural output in 1984 and 1985 helped shrink inflation rates, but a marginal decline in food production in 1986 was accompanied by an upward trend in inflation. For the next four years, ever higher food prices, driven by devaluation, contributed greatly to high inflation. By late 1994, the country's inflation rate stood at about 28 percent.
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