2025 Mid-Year Economic Review: Fiscal Discipline is a Necessary Pain
Finance Minister Ato Forson’s 2025 mid-year budget review and Bank of Ghana (BOG) Governor Asiama’s Monetary Policy Committee (MPC)’s briefing last month indicates the macro-economic fundamentals are getting better.
In these four series of articles, I will provide perspectives on fiscal discipline, debt and treasury bill rates; exports, GOLDBOD, imports and foreign exchange rates; monetary policy, inflation and interest rates; economic growth and jobs.
This first article focuses on fiscal discipline as a necessary pain to reduce government borrowing and associated interest costs as reflected in treasury bill rates.
Fiscal discipline is common sense
Fiscal discipline is common sense. It means live within your means whether as an individual, household, business or government.
For a government, it means enhancing revenue generation and collection, keeping expenditure within budget, spending wisely on things that brings social-economic returns, avoiding waste and corruption, borrowing less, and maintaining debt at a level that can be repaid.
For Ghana, fiscal discipline is especially important because this Mahama administration, in January 2025, inherited an off-track US$3 billion, 36-month IMF program that started in May 2024 and which will end in April 2027.
There was a large accumulation of GHC68 billion in payables by the previous government in the run-up to the 2024 election. Much worse was that GHC49 billion, 73% of payables, did not pass through the government’s automated financial management system, GIFMIS.
The overall fiscal deficit (expenditure and commitments in excess of revenue) at the end of 2024 was GHC90 billion, more than double that for 2023 of GHC43 billion. This deficit as a percentage of gross domestic product (value of goods and services produced) was 7.6% in 2024 compared to 4.2% in 2023.
Total public debt at the end of 2024 was GHC 727 billon (including US$28 billion in external debt denominated in foreign currency). This was an increase of 19% over the 2023 figure of GHC610 billion (including US$30 billion in external debt).
At the end of 2024, reforms agreed by the past government with the IMF to strengthen public financial management and procurement systems to prevent overcommitment and keep spending within budget had delayed.
2025 half year fiscal performance
Total actual government revenues and grants was GHS 99 billion, 3% below the target of GHC 103 billion.
Taxes on income, property, domestic goods and services were slightly above target.
Import duties were below target. The surprise is that this was not attributable to cedi appreciation.
Rather, the primary causes were revenue leakages at Tema port and other customs collection points, and the smuggling of goods across our land borders.
Petroleum receipts, grants and non-tax revenue were also below target because of a combination of cedi appreciation, lower dividends from state-owned enterprises and joint venture companies, and lower fee and charges collections.
Total actual government expenditure was GHC 110 billion, 15% below the target of GHC128 billion.
Wage expenditure, which forms 30% of targeted expenditure, was 1.4% above target.
Expenditure on goods and services was 62% of the target. That for grants to statutory funds (e.g. GETFUND, NHIS, DACF) and other government units (e.g. GHANAEXIM, YEA, Student Loan Trust, GRA) was almost 100%.
Capital expenditure and other expenditure were 39% and 87% respectively of target.
Interest payments was 83% of target because the government borrowed less than projected and interest rates on government treasury bills also reduced.
Wage and interest payments were consistently paid by the government monthly from January to June 2025.
However, a substantial portion of the cash releases from the Ministry of Finance to government institutions for goods and services, transfers to statutory and earmarked funds, and capital expenditure occurred in the later part of the half year and hence the widespread perception that the government is not spending.
The end result for January to June 2025 was that the actual fiscal deficit was GHC 15 billion, 47% of the projected figure of GHC 32 billion.
The resultant less domestic borrowing explains the almost 50% drop in the 91-day, 182 day and 364-day treasury bill rates from a range of 28% to 30% in December 2024 to 15% in June 2025.
In the short term, this is bad news for investors in treasury bills including individuals, households, banks and pension funds.
But it is good news for the entire economy as the lower treasury bills rates ultimately feeds into lower interest rates on loans for businesses and households.
The new fiscal measures are tough but necessary
Finance Minister Ato Forson has rolled out a number of new fiscal measures which will increase bureaucracy with public procurement and expenditure. But they are a necessary evil to restore sanity in public financial management.
In early May 2025 the Minister, in line with the Public Financial Management Act 2016 (Act 921), released guidelines to all Ministries, Departments and Agencies for financial commitments and expenditure management.
They require, among others, all procurements to be undertaken through the Ghana Electronic Procurement System (GHANEP). Procurements needing the Public Procurement Authority and Central Tender Review Committee should only be initiated when a commitment authorization has been obtained from the Ministry of Finance.
A purchase order should be generated from GIFMIS before the award and signing of any contract.
Contracts should be awarded only when a Commitment Compliance Checklist is completed by the Internal Audit Unit.
Any financial commitment for more than one year requires prior written approval from the Minister of Finance, and authorization by Parliament as part of the annual budget.
The Internal Audit Agency is mandated to conduct quarterly reviews and submit a report to the Finance Ministry within 10 days after each quarter.
The mid-year budget included additional measures to address the shortfall in custom duties at the ports.
They include the use of Artificial Intelligence (AI) tools to minimize human interference in revenue assessment, roll out of an Advanced Cargo Information (ACI) system to provide advance information on shipment details to the Ghana Ports and Harbours Authority (GPHA) and the Ghana Revenue Authority, anti-smuggling surveillance at inland and maritime borders, and organisational strengthening of the Customs Division of the Ghana Revenue Authority.
Uncle Ato needs strong political support from President Mahama to implement and enforce these tough measures.
It is typical in Ghana for such measures to experience push back and hindrance from elements in government and the ruling party.
For now, the IMF is present to provide external policing.
Fiscal risks for the 2nd half of 2025
The key fiscal risks for the second half of 2025 are customs revenue shortfalls and wage pressures.
Another risk is the unsatisfactory implementation of structural fiscal reforms agreed with the IMF particularly the rollout of GIFMIS to more MDAs, establishment of the Independent Fiscal Council, completion of debt restructuring with international creditors, strengthened governance and management of loss making and debt-ridden state-owned enterprises particularly the Electricity Company of Ghana and COCOBOD.
My next article will focus on exports, GOLDBOD, imports and exchange rates.
Nicholas Issaka Gbana
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The writer is a Development Economist, Chartered Accountant and Consultant
