- 2026 Mid-Year Budget: Ghana’s Stabilisation Is Not Fiscal Freedom – IERPP Cautions
Ghana’s improving macroeconomic indicators may have strengthened the appearance of recovery, but they have not restored meaningful fiscal space for government to expand public investment or absorb future shocks, the Institute of Economic Research and Public Policy has warned.
In a policy analysis authored by its Executive Director, Prof. Isaac Boadi, the institute said lower inflation, a reduced policy rate, improved debt ratios and earlier exchange-rate gains should not be mistaken for a fundamental easing of Ghana’s public finance constraints.
The warning follows the Bank of Ghana’s Summary of Economic and Financial Data released on July 21, 2026, which showed significant improvements in some headline indicators. Public debt declined to 41.50% of GDP in January 2026 from 51.10% in April 2025, while inflation fell from 13.70% in June 2025 to 3.20% in March 2026.
The Bank of Ghana’s policy rate also dropped from 28.00% in June 2025 to 14.00% by June 2026, reflecting the sharp disinflation trend and improved monetary conditions over the period.
But IERPP said those numbers risk creating a false sense of fiscal comfort. According to Prof. Boadi, the fall in the debt-to-GDP ratio was driven largely by GDP rebasing, which increased the measured size of the economy, rather than by a substantial decline in the nominal debt burden.
“The debt ratio fell mainly because the denominator moved, not the numerator,” Prof. Boadi said, cautioning that domestic debt continued to rise in nominal terms despite the improved debt ratio.
The data supports that concern. Total public debt stood at GH¢663.40 billion in January 2026, rising to GH¢720.80 billion by May 2026. Domestic debt also increased from GH¢341.00 billion in January to GH¢379.10 billion in May, even as the debt-to-GDP ratio remained below the April 2025 level.
IERPP’s argument is that Ghana is stabilising, not yet structurally strengthening. The distinction matters. Stabilisation can bring down inflation, calm exchange-rate pressures and improve confidence. But fiscal space requires something deeper: revenues that exceed rigid spending needs by enough to finance development, respond to shocks and reduce debt vulnerabilities without returning to excessive borrowing.
“Nearly everything the state collects is absorbed by recurrent spending and debt service, which is the textbook definition of no fiscal space,” Prof. Boadi stated.
That assessment goes to the heart of Ghana’s fiscal dilemma. The government may have achieved better macroeconomic optics, but wages, interest payments and other recurrent obligations continue to dominate public spending. This leaves limited room for capital expenditure and growth-enhancing investment in roads, schools, hospitals, water systems, energy infrastructure and productive sectors.
The Bank of Ghana’s fiscal data shows the pressure clearly. As of March 2026, total revenue and grants stood at 3.60% of GDP, while total expenditure was 3.90% of GDP. Capital expenditure was only 0.50% of GDP, underlining how narrow the space remains for public investment.
IERPP also warned that continued reliance on domestic borrowing could undermine the recovery by crowding out private-sector credit. If banks increase exposure to government at the expense of businesses, the private sector may struggle to access affordable financing for expansion, job creation and investment.
The Bank of Ghana’s monetary indicators show that net claims on government remained substantial, while claims on the private sector also rose. Claims on government stood at GH¢124.80 billion in June 2026, while claims on the private sector reached GH¢120.70 billion.
For IERPP, this underscores a policy risk: Ghana cannot rely on falling interest rates alone to revive investment if government financing needs continue to absorb domestic liquidity.
The institute further noted that the foundations of Ghana’s recent recovery appear to be softening. Inflation, after falling to 3.20% in March, rose to 5.30% in June. Non-food inflation also climbed to 6.30%, suggesting renewed price pressures in parts of the economy.
The exchange rate is another warning sign. After the cedi’s strong performance in 2025, the currency recorded year-to-date depreciation throughout 2026, weakening by 9.50% against the US dollar by July. It also depreciated by 9.50% against the British pound and 7.10% against the euro.
External buffers have also narrowed. Gross International Reserves declined from US$14.16 billion in March 2026 to US$12.94 billion in June, reducing import cover from 5.70 months to 5.00 months.
IERPP said these developments show why Ghana’s recovery should be treated with caution. Lower inflation and improved debt ratios are positive, but they are not enough to guarantee fiscal flexibility when reserves are falling, the currency is under pressure and recurrent spending continues to dominate the budget.
The banking sector adds another layer of concern. Although capital adequacy remained strong at 20.40% in June 2026, non-performing loans stood at 16.10%. That was lower than the 23.10% recorded in June 2025, but still high enough to suggest that credit risk remains a constraint on financial-sector support for the real economy.
IERPP concluded that Ghana must prioritise stronger domestic revenue mobilisation, protect foreign exchange reserves and expand productive investment before policymakers can claim that fiscal space has been restored.
The institute’s warning is politically important because governments often treat macroeconomic stabilisation as proof that spending room has returned. But Ghana’s recent history suggests that premature fiscal expansion can quickly reverse gains in inflation, exchange-rate stability and debt sustainability.
The central issue is therefore not whether Ghana’s indicators have improved. They have. The issue is whether those improvements have translated into durable public finance strength. IERPP’s answer is no.
For Prof. Boadi, the next phase of policy must focus on the quality of adjustment. Ghana needs revenue growth that does not overburden productive enterprise, spending reforms that reduce waste, and investment choices that raise long-term growth rather than merely satisfy short-term political demands.
The institute’s message is that Ghana has earned a measure of macroeconomic stability, but not the freedom to relax. Debt relief, disinflation and exchange-rate gains may have bought time. They have not solved the fiscal problem.
The danger is that policymakers mistake a better dashboard for a repaired engine. Ghana’s fiscal machine remains under strain, and without deeper reforms, today’s stabilisation could prove too shallow to support tomorrow’s growth.
