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Abstract: This study follows the approach in Kehoe and Nicolini (2021) in order to analyse and interpret the historical performance of Ghana's economy over the period 1960-2022 in terms of deficits, public debt accumulation, monetary policies and their relationships to inflation, exchange rate etc. The paper explores the link and similarities between Ghana's economic cycle from pre- and post-military rule. In both cases, excessive borrowing, leading to a large accumulation of public debt, and accompanied with burdensome debt interest payments, has been one of the major challenges that the country must wean itself from.
The study also documents that the underlying reason for the deficits is the low domestic revenue mobilisation, i.e the fiscal capacity of Ghana is lower compared to the one of developed countries. Finally, the positive interaction between money supply and inflation has also been established in this study. However, the increase in money supply (and thus inflation) is a result of fiscal imbalances: by printing money, the Central Bank of Ghana is effectively using inflation as a tax and trying to generate a seigniorage revenue to "cover" at least part of the budget deficit.
Keywords: inflation; seigniorage; budget deficit; debt; fiscal theory of inflation.
JEL Classification: E62; R11.
Introduction
Has Ghana lived up to her name as the "black star" of Africa after six decades of independence? The purpose of this study is to outline and find the major macroeconomic setbacks that has rocked the Ghanaian economy between the periods of 1960-2022. Often described as the gateway of Africa due to its position and shape on the continent, Ghana is a country located in West Africa with a population of over 30 million and a GDP of about $77.59 billion as at 2021 (World Bank, 2021). After gaining independence from the British in 1957, the country has gone through the pain of dealing with four successful coups leading to economic upheavals that has derailed economic growth and development. The story has however changed since 1992 when the country finally returned to a democratic rule. The country began to experience stability post 2000. As compared to its peers in the sub-Saharan Africa, Ghana is now seen as a beacon of democracy where human rights and freedom of the press is valued...