Government Expenditure Doubles in a Decade Limiting Fiscal Space
Government expenditure nearly doubled between 2010 and 2022, outpacing economic growth and straining the country’s fiscal space, according to the World Bank’s latest Ghana Public Finance Review Report, themed “Building the Foundations for a Resilient and Equitable Fiscal Policy.”
The report highlights that overspending during election years, contingent expenses in the financial and energy sectors, and COVID-19-related expenditures have contributed to the sharp rise in spending. However, public spending has remained volatile and ineffective in targeting critical areas such as infrastructure and social development.
Between 2010 and 2023, approximately 70 percent of total government expenditure—equivalent to 15.8 percent of GDP annually—was allocated to three key spending items: public sector wages, interest payments, and statutory earmarked transfers. This rigid allocation absorbed nearly all annual revenue, limiting fiscal flexibility and policy responsiveness.
The report notes that economic adjustment measures in 2023, including a moratorium on debt service, have helped in reducing spending.
Rising Debt Burden and Infrastructure Deficits
The World Bank further observed that Ghana’s increasing debt burden has led to a decline in capital investment. Between 2010 and 2021, the country spent two to four times more on interest payments than key comparator nations, significantly straining its financial resources.
While public sector wages—averaging 33 percent of total spending and 7 percent of GDP—align with those in lower-middle-income countries (LMICs) and Sub-Saharan Africa (SSA), they remain the largest single expenditure item, frequently leading to budget overruns.
Meanwhile, capital expenditure averaged only 16 percent of total spending and 3.5 percent of GDP, compared to nearly 20 percent and 5 percent across LMICs and the SSA region. Public investment in infrastructure has suffered as a result, with budgeted capital spending frequently falling short.
The report underscores that systemic weaknesses in public investment management (PIM) have resulted in infrastructure bottlenecks. These include deteriorating power transmission and distribution assets, as well as limited road connectivity, particularly in Ghana’s northern regions.
Call for Fiscal Reforms
To address these challenges, the World Bank recommends a more disciplined fiscal approach, focusing on improving public investment efficiency and reducing rigid expenditure commitments.
Enhancing revenue mobilization and prioritizing capital spending could help Ghana build a more resilient and equitable fiscal framework.
With Ghana undergoing an IMF economic adjustment program and debt restructuring efforts, fiscal prudence will be essential in stabilizing public finances and fostering long-term economic growth.
