The Institute for Economic Affairs (IEA) has called for an amendment to the Fiscal Responsibility Act to include a provision that limits the period for which it can be suspended in times of emergency.

According to the IEA, this measure would prevent the indefinite suspension of the Act, as witnessed since 2020.

In its analysis of the 2025 Budget, the economic think tank emphasized the importance of maintaining fiscal discipline and avoiding prolonged fiscal irresponsibility. It acknowledged the government’s decision to review the Fiscal Responsibility Act by strengthening responsibilities and tightening the sanctions regime, describing it as a step in the right direction.

The IEA also lauded the government’s move to legislate a debt ceiling of 60% of Gross Domestic Product (GDP), stating that this aligns with its longstanding recommendation. It believes such a cap is necessary to curb excessive borrowing and ensure long-term fiscal sustainability.

Beyond limiting the suspension of the Fiscal Responsibility Act, the IEA has reiterated its proposal that all borrowed funds should be used exclusively for investment purposes. The organization argues that directing loans toward productive sectors would not only foster economic growth but also generate sufficient revenues for future debt repayments.

According to the IEA, Ghana has faced recurring debt crises due to the misallocation of borrowed funds. If the government strictly channels these funds into investment-driven projects, it could enhance economic development while reducing the country’s dependence on further borrowing.

Cost-Cutting Measures Welcomed

The IEA also welcomed the cost-cutting measures outlined in the 2025 Budget, particularly those aimed at reducing the size of government and associated spending on goods and services. The institution noted that these measures would lead to a significant decline in total expenditure (cash) as a ratio of GDP from 23.7% in 2024 to 19.2% in 2025.

However, it expressed concern over the persistently low capital expenditure (CAPEX) allocation, which stands at 2.4% of GDP in 2025, slightly lower than the 2.5% allocation in 2024. The IEA has long criticized the inadequate levels of CAPEX in Ghana’s budgets, warning that the continued underfunding of infrastructure and development projects remains a major impediment to economic growth.

The think tank also raised concerns about Ghana’s projected economic growth for 2025. According to the 2025 Budget, the government anticipates a GDP growth rate of 4.0%, a decline from the 5.7% projected for 2024. The IEA argues that this growth forecast falls below the country’s potential, considering the untapped resources and capacities available for economic expansion.

To unlock higher growth, the IEA has urged the government to focus on policies that maximize Ghana’s economic potential. This includes increasing investment in productive sectors, improving infrastructure, and ensuring prudent fiscal management.

The IEA’s recommendations highlight the need for disciplined fiscal governance to prevent Ghana from falling into recurrent financial crises. By limiting the suspension period of the Fiscal Responsibility Act, ensuring borrowed funds are invested wisely, and addressing the imbalance in government spending, the country can achieve sustainable economic growth.