Ghana’s fiscal outlook for 2025 faces renewed scrutiny despite an impressive show of expenditure restraint in the first half of the year.

The latest analysis from IC Research reveals that unplanned obligations in the energy sector could derail the government’s budgetary ambitions, with the fiscal deficit now projected to end the year at 3.9% of Gross Domestic Product (GDP) — marginally higher than the official target of 3.8%.

According to IC Research, the government’s commitment to sustaining expenditure rationalisation in early 2025 has significantly eased short-term concerns. Spending controls have helped create a sense of fiscal discipline, prompting the Ministry of Finance to lower its deficit target from 4.1% to 3.8% during the Mid-Year Review Budget presentation.

The Finance Minister highlighted that the first six months outperformed expectations, signalling progress towards restoring public finances. This improved outlook was underpinned by tighter spending and ongoing efforts to boost domestic revenue mobilisation.

Energy Sector Liabilities Loom Large

Despite these gains, IC Research warns that ballooning energy sector obligations threaten to offset fiscal progress. The firm revealed an unexpected surge in such liabilities by GH¢2.9 billion, pushing the total for 2025 to GH¢30 billion. Notably, 94.1% of this increase has already been paid within the first half of the year.

This unplanned expenditure stems partly from shortfalls in the Electricity Company of Ghana’s (ECG) compliance with the Cash Waterfall Mechanism. While ECG broadly adhered to the mechanism in the first five months of 2025, a GH¢103.4 million revenue shortfall in January, coupled with likely under-collections in subsequent months, forced the government to step in with additional payments.

Risks Beyond the Energy Sector

IC Research’s report also points to the public sector payroll as another lingering source of fiscal pressure. Payroll commitments, combined with volatile energy sector obligations, create what the firm calls “upside risks” to the deficit target. These pressures mean that even if the government maintains its expenditure discipline, unplanned liabilities could undermine the overall fiscal balance.

The unchanged primary surplus target of 1.5% of GDP for 2025 — despite the deficit challenges — reflects the government’s attempt to keep its fiscal anchor steady. However, IC Research interprets this as a sign that the authorities are bracing for further expenditure shocks.

Why the Deficit Matters

Ghana’s fiscal deficit — the gap between revenue and expenditure — has long been a key indicator of the country’s macroeconomic health. A lower deficit signals greater fiscal sustainability and boosts investor confidence, while persistent shortfalls can lead to rising debt and higher borrowing costs.

In recent years, the government has faced mounting pressure from both domestic stakeholders and international partners to rein in deficits and restore debt sustainability. The 2025 fiscal plan was designed with these concerns in mind, making any deviation from the target a potential source of market unease.

IC Research remains cautious about Ghana’s short-to-medium term fiscal trajectory. While the first-half performance offers a positive narrative, the unpredictability of energy sector payments and other contingent liabilities could keep the deficit elevated.

“This payment uncertainty in the energy sector keeps us cautious on the short-to-medium term fiscal outlook,” the firm stated, emphasizing that expenditure shocks remain the most significant risk to achieving the 2025 target.

For the government, the challenge will be to sustain its spending discipline while finding structural solutions to the recurring energy sector debt problem. Without this, each year’s budget risks being thrown off course by unplanned payouts to cover sector shortfalls.

Meanwhile, revenue mobilisation will remain critical. The government is banking on improved tax compliance, digitalisation of revenue systems, and growth in key economic sectors to help offset rising liabilities. Yet, these measures will need to be paired with durable reforms in the energy sector to limit future disruptions.

The 2025 fiscal year may still end close to the targeted deficit, but as IC Research’s findings suggest, the margin for error is razor-thin. Any further shocks — whether from the energy sector, payroll demands, or external economic pressures — could easily push the deficit above government projections.