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Story by, Paul Mensah Nsor
ACCRA, Ghana - While Ghana's economy showed promising signs of recovery in the first half of 2025, a comprehensive analysis by the Institute for Fiscal Studies (IFS) has uncovered significant fiscal challenges that threaten the government's ambitious development agenda.
The West African nation recorded impressive macroeconomic improvements during the first six months of 2025, with real GDP growth reaching 5.3% in the first quarter, up from 4.9% in the same period of 2024. The agricultural sector emerged as the primary growth driver, expanding by 6.6% and contributing nearly half of Ghana's real GDP, with the fishing subsector recording a remarkable 16.4% growth rate.
The services sector also demonstrated robust performance, growing by 5.9% driven by strong showings in information and communication technology (13.1%) and financial services (9.3%). Meanwhile, the industrial sector recorded 3.4% growth, with manufacturing achieving its highest year-on-year growth of 6.6% since the fourth quarter of 2021.
Perhaps most notably, Ghana broke free from the persistent high inflation that plagued the economy throughout 2024. Headline inflation plummeted from 23.8% in December 2024 to 13.7% by June 2025, marking the first time in years that inflation dropped below the 20% threshold.
This inflation reduction was broad-based, with food inflation declining from 27.8% to 16.3% and non-food inflation falling from 20.3% to 11.4% during the same period. Both locally produced and imported goods experienced substantial reductions in inflation rates.
Interest rates responded positively to the improved inflation environment. The 91-day Treasury bill rate dropped dramatically from 27.7% in December 2024 to 14.7% by June 2025, while the average lending rate eased from 30.3% to 27%.
The Ghanaian cedi experienced remarkable appreciation against foreign currencies, gaining 42.6% against the US dollar, 30.3% against the British pound, and 25.6% against the Euro between December 2024 and June 2025. This represented a sharp reversal from the depreciation rates of 18.6%, 17.9%, and 16% respectively during the same period in 2024.
Ghana's external sector witnessed substantial improvements, with gross international reserves rising to $11.12 billion by June from $8.98 billion in December 2024, representing 4.8 months of import cover. The balance of trade registered a surplus of $5.57 billion in June 2025, compared with $1.37 billion in June 2024.
However, the IFS analysis revealed that these positive macroeconomic indicators masked serious underlying fiscal challenges. The government's actual fiscal performance, while appearing favorable on the surface, was largely driven by circumstances beyond its control rather than deliberate policy success.
Leslie Dwight Mensah, a research fellow at the Institute for Fiscal Studies( IFS) explained that the significantly lower fiscal deficit outcomes were "largely imposed on the government by difficult fiscal conditions during the period" rather than being the result of deliberate fiscal consolidation efforts.
The fiscal deficit on a commitment basis stood at 10.25 billion cedis, representing a massive 59.8% reduction from the initially budgeted amount of 25.47 billion cedis. While this appears positive, the reduction was primarily due to the government's inability to execute its planned expenditure program.
Despite optimistic projections, revenue collection significantly underperformed expectations. Total revenue and grants reached only 99.34 billion cedis against a budgeted 102.58 billion cedis, representing a shortfall of 3.24 billion cedis or 3.2%.
Domestic revenue fell 2.9 billion cedis below target, while foreign grants were 338.72 million cedis or 31.7% below expectations. This weak revenue performance occurred despite the government's efforts to introduce new revenue measures and improve tax collection efficiency.
The government faced unprecedented challenges in securing financing for its operations. It managed to raise only 15.12 billion cedis in net budget financing, representing just 45.9% of the programmed 32.96 billion cedis.
Foreign borrowing was particularly affected, falling short by 63.8% from a budgeted 19.13 billion cedis to an actual 6.93 billion cedis. Net domestic financing also disappointed, falling short by 5.79 billion cedis or 30.7% from the programmed amount.
To cope with these financing constraints, the government was forced to draw down 4.58 billion cedis from its balances at the Bank of Ghana, despite having programmed zero withdrawals from these reserves.
The most concerning impact of these fiscal challenges was on capital expenditure, which forms the backbone of the government's development agenda. Capital spending fell dramatically short by 10.95 billion cedis or 60.6%, from a programmed 18.06 billion cedis to a mere 7.11 billion cedis.
This massive shortfall in capital investment occurred despite the government's "big push" infrastructure agenda, effectively rendering this flagship policy initiative inconsequential. The IFS noted that even before these developments, the originally budgeted capital spending was already insufficient for the ambitious infrastructure goals.
The severity of the fiscal constraints became evident when even the government's flagship Ghana Gold Board initiative received no funding during the first half of the year, despite being programmed to receive 4.55 billion cedis as seed money for its operations.
Arrears payments, crucial for improving the liquidity of government contractors and reducing non-performing loans in the banking system, were also severely affected. Only 4.78 billion cedis was paid against a programmed 7.5 billion cedis, representing a 36.2% shortfall. This is particularly concerning given that the government reportedly inherited 67.5 billion cedis in outstanding liabilities.
The IFS analysis raised serious questions about the government's revised 2025 budget projections. Despite the significant revenue shortfalls in the first half of the year, the government maintained virtually all revenue projections unchanged for the full year, except for ESLA proceeds which increased by 2.87 billion cedis due to a new fuel levy.
This approach suggests that the revised revenue projections do not adequately account for the actual performance in the first half of the year. For example, oil revenue recorded a 42.9% shortfall in the first half, yet the government maintained the same annual oil revenue projection of 16.51 billion cedis in the revised budget.
The IFS highlighted a fundamental issue with Ghana's approach to revenue mobilization from its extractive sector. Despite President John Mahama's bold statements about Africa taking advantage of its natural resources, the government's fiscal policy has not addressed the structural limitations in revenue generation from this strategic sector.
The analysis pointed to the concession regime as the main cause of poor revenue generation from the extractive sector, noting that countries like Botswana have achieved remarkable development by adopting more pro-developmental approaches to managing their natural resources.
The underpayment of government arrears has significant implications for Ghana's banking sector, as it contributes to high non-performing loans and liquidity challenges for financial institutions. Government contractors, unable to receive timely payments, struggle to service their bank loans, creating a ripple effect throughout the financial system.
The IFS analysis suggests that Ghana faces a critical juncture requiring urgent policy reforms to address its structural fiscal challenges. The current approach of relying primarily on tax increases for revenue mobilization may not be sustainable, given the country's low income levels and the need to maintain economic competitiveness.
The institute emphasized that without repositioning the country for enhanced revenue mobilization from strategic sectors like mining and oil, Ghana will struggle to achieve genuine development. The comparison with successful resource-rich countries like Botswana and the Gulf states underscores the importance of adopting more developmental approaches to natural resource management.
The mixed signals from Ghana's economic performance - positive macroeconomic indicators alongside serious fiscal challenges - present a complex picture for international investors and development partners. While the improved inflation and exchange rate stability are encouraging, the underlying fiscal weaknesses raise questions about the sustainability of these gains.
International financial institutions and bilateral partners will likely scrutinize Ghana's fiscal management more closely, particularly given the country's recent history of fiscal slippages.