Ghana’s Fiscal Policy Remains Highly Procyclical Undermining Debt Sustainability – EGP Report Reveals
Ghana’s fiscal policy remains highly procyclical and vulnerable to external shocks, driven by commodity price volatility and election-related spending, notes key findings from a new report by the Economic Governance Platform (EGP) and the Open Society Foundations.
The report, titled “Sustainable Debt Management in Ghana” and launched on Thursday, July 10, 2025, highlights how significant fiscal slippages around election periods have left the economy with limited buffers to absorb shocks such as the COVID-19 pandemic and the ongoing Russia-Ukraine conflict.
Expenditure overruns, largely driven by wages, subsidies, and social intervention programmes, as well as structural rigidities such as interest payments, the District Assembly Common Fund (DACF), and employee compensation, continue to consume the bulk of government revenue. These trends, the report noted, have reinforced Ghana’s overreliance on borrowing and worsened its public debt burden.
The report further identified weaknesses in the country’s procurement regime as a major contributor to fiscal stress. Between 2012 and 2021, nearly 86% of high-value government contracts were awarded through sole-sourcing or restricted tendering, in breach of competitive procurement norms. This, coupled with inflated contract prices, poor management, and political interference, has led to widespread financial waste, cost overruns, and mounting debt. Additionally, the report observed that poor contract negotiations and irregular terminations have exposed the government to avoidable legal liabilities.
On debt transparency, the study underscored significant gaps in government reporting prior to the IMF-supported programme. While official data put public debt at 75.9% of GDP, the joint IMF-World Bank Debt Sustainability Analysis (DSA) revealed a present value debt-to-GDP ratio of 105%, officially placing Ghana in debt distress. The external debt service-to-revenue ratio was also alarmingly high at 34%, almost double the recommended threshold of 18%.
The report further criticised the exclusion of financial sector clean-up costs and energy sector liabilities from the government’s public debt figures, which it said distorted the country’s true fiscal position. Debt collateralization arrangements such as the Energy Sector Levies Act (ESLA) and DAAKYE bonds were also cited as limiting fiscal flexibility and undermining transparency.
The central bank’s role came under scrutiny, with the report highlighting how the Bank of Ghana’s financing of government deficits through overdraft facilities contributed to inflationary pressures. These financing activities, the report added, were not fully disclosed until the IMF’s DSA flagged them, raising concerns over the central bank’s dual role in debt operations and liquidity management. The report called for a clearer separation of these functions and stronger oversight of the central bank’s discretionary powers.
To strengthen Ghana’s debt management framework, the report strongly recommended the establishment of an independent fiscal council to oversee government expenditure, borrowing, and deficit financing strategies. Such a body, the report argued, would enhance transparency, improve budget discipline, and reduce the fiscal risks that have long undermined the country’s economic stability.
