- Borrowing for Wages Deepens Ghana’s Fiscal Strain as Compensation Bill Hits GHS78.9 billion
Ghana was forced to borrow about GHS17bn in 2025 to help finance public sector wages, laying bare the strain that compensation costs are placing on the country’s already stretched fiscal position. The disclosure by Finance Minister Dr Cassiel Ato Forson adds a sharper edge to the debate over public sector pay reform, revealing that even after strong non-oil tax collections, the government still lacked enough internally generated revenue to meet its wage obligations.
Speaking at the President’s Dialogue with Organised Labour at Jubilee House, Dr Forson said the arithmetic of the budget had become increasingly difficult to sustain.
“After paying statutory funds and debt service from non-oil tax revenue, what was left was not enough to settle Ghana’s compensation bill. This means that the government had to borrow about 17 billion Ghana cedis to pay public sector workers,” he stated.
The figures illustrate how Ghana’s expenditure structure is being dominated by rigid, non-discretionary commitments, leaving policymakers with shrinking room to fund operations, investment and social priorities without resorting to fresh borrowing. According to the finance minister, Ghana generated GHS183bn in non-oil tax revenue in 2025. But much of that was pre-allocated before the government could turn to day-to-day spending needs.
Statutory transfers, including the District Assemblies Common Fund, GETFund and the National Health Insurance Levy, absorbed GHS55.7bn, while debt servicing took a further GHS64.3bn. That left only GHS61.9bn available to cover the rest of government spending, including wages, goods and services and capital expenditure.
However, the total compensation bill amounted to GHS 78.9bn, resulting in a shortfall that necessitated borrowing. “Simply put, we are borrowing to supplement what is left to pay workers,” Dr. Forson emphasised.
That funding gap goes to the heart of Ghana’s fiscal dilemma. The state is collecting more revenue, but an overwhelming share is tied up in legacy obligations and recurrent spending, reducing the government’s ability to redirect resources towards growth-enhancing investment.
Employee compensation remains the single largest component of public expenditure, accounting for 39 per cent of total spending, 44 per cent of non-oil tax revenue and 5.64 per cent of gross domestic product, according to the minister.
Dr Forson said Ghana’s compensation-to-tax revenue ratio now stands well above the 35 per cent benchmark required under ECOWAS convergence rules. “Ghana’s ratio of 44 percent is far above the ECOWAS threshold, and this presents a major fiscal challenge,” he said.
The implications extend beyond fiscal optics. A budget increasingly consumed by wages leaves little space for the routine and developmental spending needed to keep the machinery of government functioning and support medium-term growth.
Despite the scale of compensation spending, only 3 per cent of total expenditure is allocated to goods and services, while capital expenditure stands at just 6 per cent and social benefits at 1 per cent. That imbalance, Dr Forson argued, is eroding the ability of ministries, departments and agencies to operate effectively.
In practical terms, the state is paying heavily to sustain its payroll while underfunding the tools, systems and investments required for service delivery and economic expansion. The finance minister traced the rising wage bill to a combination of annual base pay adjustments, public sector employment growth, new allowances and benefits, legislative decisions that improve conditions of service, and pension obligations linked to enhanced remuneration packages.
He also raised concern over what he described as a fragmented and increasingly unsustainable compensation architecture, in which multiple laws and administrative processes shape pay determination across the public sector.
According to Dr Forson, the result has been a patchwork system marked by disparities, inconsistencies and fiscal slippage. “These laws are inconsistent with each other and create chaos and inequalities in pay administration,” he stated.
That criticism speaks to a broader structural challenge: Ghana’s pay-setting system is not only expensive but also difficult to control. As more institutions seek parliamentary approval for enhanced salary structures and benefits, pressure on the budget intensifies, often without a unifying fiscal anchor.
For investors and fiscal analysts, the most troubling signal is that the government is now borrowing not for capital formation or counter-cyclical support, but to finance recurrent payroll commitments. That deepens concerns over sustainability at a time when debt service already consumes a large share of revenue. The reliance on borrowing to fund wages is likely to strengthen calls for a more centralised, transparent, and rule-based compensation framework capable of aligning wage outcomes with macro-fiscal realities.
Government has indicated that reforms are under consideration. But the minister’s latest disclosure suggests the issue is no longer merely one of public sector efficiency; it is now central to Ghana’s broader fiscal recovery strategy. Without structural change, the wage bill risks continuing to crowd out spending on infrastructure, social protection and public service delivery, while worsening the trade-offs between compensating workers and preserving macroeconomic stability.
For Ghana, the challenge is no longer whether the public payroll is too large for the revenue base. It is whether the state can reform the system quickly enough to prevent compensation costs from becoming an even greater drag on fiscal consolidation and long-term development.
