EXPLAINER: Why Ghana should prioritise concessional loans over costly domestic borrowing

The World Bank has urged Ghana to shift its borrowing strategy towards concessional loans, which offer cheaper and more flexible financing compared to expensive short-term domestic borrowing.

At the launch of the 'World Bank’s 2025 Policy Notes: Transforming Ghana in a Generation' in Accra on September 24, 2025, the Country Director for Ghana, Sierra Leone, and Liberia, Robert Taliercio, stressed the need for the government to make greater use of International Development Association (IDA) resources.

He explained that while Ghana has often relied on Treasury bills (T-bills) to finance capital projects, this approach comes at a steep cost.

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Between 2023 and 2024, domestic T-bills carried average interest rates of 27.4%, compared to IDA loans, which come with interest and service charges as low as 0.75% to 2.0%, alongside long repayment periods and grace windows.

Even with Ghana’s borrowing costs falling to 11.9% in September 2025, concessional loans remain far cheaper.

“New IDA blend terms are offering rates as low as 1.5%, locked in for longer periods. So it’s an obvious choice to maximise IDA resources before resorting to domestic borrowing,” Taliercio noted.

This article, however, explores what concessional loans are and why they matter to the country.

What are concessional loans?

Concessional loans are credit facilities extended by multilateral institutions like the World Bank or regional development banks that come with below-market interest rates, longer repayment timelines, and grace periods before repayments begin.

Unlike commercial loans, their terms are designed to help developing countries finance infrastructure, social programs, and other long-term investments without creating unsustainable debt burdens.

For Ghana, concessional financing can be a lifeline, especially when domestic borrowing eats into government finances through high interest payments, crowding out private sector credit and limiting development investments.

Why should countries push towards concessional loans?

The World Bank’s 2025 Policy Notes argue that concessional borrowing is critical for restoring Ghana’s macro-financial stability and building the foundations for inclusive growth.

The report highlights four priorities:

1. Boosting domestic revenue mobilisation – Ghana’s tax-to-GDP ratio remains among the lowest in Sub-Saharan Africa, at 13% in 2021 against an estimated potential of 21%.

2. Ensuring sustainable public finances – shifting away from high-interest borrowing will reduce fiscal pressure.

3. Reforming key sectors – such as energy and cocoa, which continue to drain public resources.

4. Fostering inclusive growth – by channelling cheaper financing into long-term development projects that benefit citizens.

So far in 2025, Ghana’s revenue mobilisation reached 7.1% of GDP against a 7.3% target for the first half of the year, underlining the need for both improved revenue collection and smarter borrowing choices.

For a country struggling with recurring fiscal crises, concessional loans provide an opportunity to finance development at a fraction of the cost of domestic borrowing.

According to the World Bank, Ghana must rethink its reliance on short-term T-bills and instead lean into concessional financing options like those provided by IDA to break free from its cycle of debt and instability.

SSD/SA

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