Ghana’s fiscal performance recorded a dramatic improvement in 2025, with the overall budget deficit narrowing from 7.9% to just 1.0% of Gross Domestic Product (GDP). However, a closer examination of the figures has raised questions about the sustainability of the gains, particularly as government expenditure restraint, rather than stronger revenue mobilisation, emerged as the main driver of the consolidation.
The Institute of Statistical, Social and Economic Research (ISSER) of the University of Ghana has warned that although the improvement in the country’s fiscal position represents a significant step towards economic stability, the approach carries potential risks for infrastructure development and long-term growth.
In its State of the Ghanaian Economy Report 2025, ISSER disclosed that the country’s fiscal consolidation was largely achieved through expenditure restraint, highlighting the need for stronger domestic revenue mobilisation to sustain the gains without undermining productive public investment.
The findings raise an important question about Ghana’s economic recovery: can the government maintain its impressive fiscal performance without compromising the investments needed to support future growth?
Deficit Plunges as Ghana Tightens Spending
Ghana’s overall fiscal deficit narrowed from 7.9% of GDP in 2024 to 1.0% in 2025 on a commitment basis, marking a substantial improvement in the government’s budget position.
The World Bank similarly estimates Ghana’s general government deficit at 1.2% of GDP, reinforcing the evidence of a significant fiscal adjustment during the period.
The country’s primary balance also returned to surplus, indicating that government revenue exceeded expenditure excluding interest payments on public debt.
These developments offer some relief to an economy that has faced considerable fiscal pressures in recent years. A smaller deficit reduces the government’s immediate borrowing requirements, potentially easing pressure on domestic financing and creating room for greater macroeconomic stability.
However, ISSER’s assessment suggests that the composition of the adjustment deserves as much attention as the headline figures.
While tighter expenditure controls can help restore fiscal discipline, excessive reliance on spending reductions may weaken the government’s ability to finance infrastructure and other investments essential for economic expansion.
The challenge, therefore, is to ensure that the pursuit of fiscal stability does not come at the expense of the productive capacity needed to sustain it.
Capital Spending Takes a Hit Despite Fiscal Gains
One of the most concerning developments highlighted in the report is the sharp decline in capital expenditure.
According to ISSER, capital spending fell from 2.5% of GDP to 1.4% in 2025, raising concerns about the level of public investment supporting the country’s long-term development.
Capital expenditure typically finances infrastructure and other assets that can improve economic productivity, including roads, transport networks, public facilities and essential services.
When such spending declines significantly, the immediate fiscal benefits may be accompanied by longer-term economic costs. Inadequate investment in infrastructure can increase business operating costs, limit connectivity and weaken the conditions required to attract private investment.
The consequences could be particularly important for an economy seeking to expand production, create jobs and improve competitiveness.
ISSER cautioned that fiscal adjustment achieved through sharp reductions in capital spending could constrain infrastructure development and future growth.
This concern places the government before a difficult balancing act. Spending discipline remains necessary to prevent a return to unsustainable deficits, but protecting productive investments is equally important if fiscal consolidation is to deliver lasting economic benefits.
The priority is not simply to spend less, but to ensure that available public resources are allocated efficiently and directed towards projects with meaningful economic and social returns.
Public Debt Drops to 46% of GDP
Ghana’s public debt also recorded a substantial decline in 2025, falling from 62.7% to 46.0% of GDP.
The reduction represents a significant improvement in the country’s debt position and could help ease concerns about debt sustainability and future financing pressures.
ISSER attributed the decline to fiscal adjustment and the effect of cedi appreciation on the domestic currency value of external debt.
Currency appreciation can reduce the cedi value of foreign-currency-denominated obligations when measured in domestic currency, thereby improving debt ratios even without an equivalent reduction in the underlying foreign-currency debt stock.
This distinction is important because the durability of the improvement will depend partly on exchange-rate developments, borrowing decisions and the government’s ability to maintain sound fiscal management.
Although a lower debt-to-GDP ratio can strengthen investor confidence and improve the government’s financial position, sustaining that progress requires more than favourable exchange-rate movements and expenditure reductions.
The government must also ensure that its revenue base is strong enough to finance essential services, meet debt obligations and support economic development without repeatedly resorting to excessive borrowing.
ISSER Pushes for Stronger Domestic Revenue
Despite the improvement in the fiscal deficit and public debt, Ghana’s total revenue and grants amounted to 16.1% of GDP in 2025, highlighting the importance of strengthening domestic revenue mobilisation.
ISSER argues that sustaining fiscal consolidation requires stronger revenue mobilisation alongside expenditure discipline and improved spending efficiency.
The research institute has called for the broadening of the tax base, improved compliance and measures to reduce revenue leakages.
These priorities could help the government generate additional resources without relying disproportionately on spending cuts that affect infrastructure and social programmes.
Broadening the tax base would require efforts to bring more eligible economic activities into the tax net, while stronger compliance measures could help ensure that existing tax obligations are met.
Reducing revenue leakages would also improve the amount of money reaching government accounts, allowing public authorities to finance essential services more effectively.
The effectiveness of these measures will depend on implementation, including the government’s ability to strengthen tax administration, improve enforcement and build confidence in the use of public funds.
Greater efficiency in public spending is equally important. Better expenditure management could allow the government to achieve stronger development outcomes without necessarily increasing overall spending.
Fiscal Discipline Must Not Undermine Growth
ISSER has also emphasised the need to sustain fiscal discipline through improved commitment controls, the prevention of arrears accumulation and the management of debt refinancing risks.
These measures are important because a government can record an improved deficit in the short term but still face financial pressures if spending commitments are poorly managed or outstanding obligations accumulate.
The institute’s recommendations point towards a broader approach to fiscal consolidation, one that combines expenditure control with stronger revenue generation and the protection of priority infrastructure and social spending.
Ghana’s 2025 fiscal performance has delivered a substantial reduction in the budget deficit and public debt ratio. Yet the decline in capital expenditure shows why headline improvements must be assessed alongside their implications for future development.
The next phase of fiscal management will require the government to build on these gains by strengthening domestic revenue, closing leakages and directing spending towards productive priorities.
Ultimately, the durability of Ghana’s fiscal recovery will depend not only on how successfully the government reduces borrowing requirements, but also on whether it can finance the investments needed to generate jobs, improve productivity and support sustainable economic growth.
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