Kofi Ampoma Asuako, PhD

When a government runs short of money, it has a few choices. It can raise taxes, borrow, cut spending, or print more money.

In many African countries, none of these choices is easy. People may not welcome higher taxes, spending cuts can affect jobs, schools, hospitals, and public services, and borrowing can be difficult or expensive.

Because of this, printing money can seem like the easiest option.

At first, it may even appear to help. The government can keep paying workers, funding projects, and supporting the economy. People may see more money moving around, and business activity may improve for a short time.

But this can create bigger problems later.

When too much money is printed, prices begin to rise and the local currency can lose value. Families then find that their money does not buy as much food, fuel, transport, or rent as before. Businesses also pay more for imported goods, machines, raw materials, and other supplies.

Life becomes more expensive for everyone.

As prices rise, some families and businesses begin to struggle. A shop owner may sell less because customers cannot afford to buy as much. A farmer may pay more for fertiliser or fuel. A worker may find that their salary is no longer enough to cover basic needs.

When this happens, many people and businesses find it harder to repay their bank loans.

That is when the problem reaches the banks.

Banks lend money to families, farmers, traders, small businesses, and larger companies. When borrowers cannot repay their loans, banks lose money. At the same time, high inflation and a weaker currency can make it more expensive for banks to operate, especially if they borrowed money from outside the country.

So banks are hit from two directions. Their customers struggle to repay loans, while the banks themselves face higher costs.

When banks become worried about losses, they become more careful. They lend less money and may charge higher interest rates on the loans they still give out.

This is where the plan can backfire.

The government may have printed money to help the economy. But if banks stop lending, businesses cannot easily borrow to buy equipment, expand, or hire more workers. Families may also struggle to borrow for school fees, housing, farming, or emergencies.

Over time, less lending can slow the economy down.

So a policy that seems helpful today can create problems tomorrow.

This matters a great deal in countries where banks are the main place people and businesses go to borrow money. If banks pull back, many people have nowhere else to turn.

In my research on Ghana, I studied what happens when government spending is financed by printing money. The results show a clear pattern. Heavy money printing can weaken banks, reduce lending, and slow economic activity.

The good news is that there is a better way.

When government spending is financed through a mix of taxes, borrowing, and much less money printing, banks remain stronger. Businesses can continue to access credit, and the economy is less likely to suffer from high inflation and weak lending.

The main lesson is simple.

It is not only about how much money a government spends. It is also about where that money comes from.

A government money problem can become a banking problem. Once banks are in trouble, the effects spread throughout the economy through fewer loans, fewer jobs, and slower growth.

This post is based on my paper, “Money-Financed Government Deficits and Bank Fragility in Frontier Economies,” African Review of Economics & Finance, 18(1), 28–69 (2026). Read the full paper (PDF).