The Institute of Economic Affairs (IEA) has outlined its expectations for Ghana’s 2025 Budget and Economic Policy, set to be presented by the Minister of Finance on March 11, 2025.
As the first budget under the new NDC administration, it arrives at a critical juncture, with the nation grappling with high inflation, currency depreciation, rising debt, and escalating living costs.
The budget’s formulation is further influenced by the ongoing IMF-supported Extended Credit Facility (ECF) program inherited from the previous NPP government, spanning 2023 to 2026.
IEA anticipates that fiscal consolidation, economic recovery, and improved revenue mobilization will be top priorities.
“The IEA presents its expectations of the budget in the areas of revenue management, expenditure management, debt management, energy policy, cocoa sector policy, and monetary and financial sector policy to inform public discourse.”
Institute of Economic Affairs (IEA)
Ghana’s tax revenue-to-GDP ratio, currently hovering around 13-14%, is significantly below the 20-25% average of its middle-income peers.
Accordingly, IEA attributed this shortfall to a narrow tax base, tax evasion, administrative inefficiencies, and loopholes.
Moreover, the NDC government has pledged to eliminate certain taxes, including the E-Levy, COVID Levy, Emissions Tax, and Betting Tax.
While IEA supports the removal of the first three, deeming them outdated or burdensome, it argued that the Betting Tax should be retained but reduced to 5% from 10%. The institute also recommends scrapping the Growth and Sustainability Tax.
To offset revenue losses, IEA urged the government to close tax loopholes, broaden the tax base via digitalization, and enhance tax administration.
“New tax innovations should be explored, especially within the digital economy. An e-commerce tax presents significant potential and should be fully leveraged.”
Institute of Economic Affairs (IEA)
IEA also advocated for a super-profits tax targeting extractive industries, telecommunications, and banks, similar to models in Australia, the UK, India, and the US.
Expenditure Rationalization
Effective expenditure management is essential for balancing fiscal consolidation with economic recovery.
As such, IEA called for curbing wasteful spending on administration, travel, and entertainment while preserving critical investments in health, education, and infrastructure.
“The 2025 budget should mark the beginning of increasing capital expenditure (CAPEX) to at least 10% of GDP over the medium term to drive growth, create jobs, and enhance living standards.”
Institute of Economic Affairs (IEA)
IEA also backed President Mahama’s proposed Independent Value-for-Money Department (IVMD), projecting that it could save the country 3-4% of GDP by curbing corruption and inefficiencies.
Ghana’s debt-to-GDP ratio has dropped from over 100% in 2022 to approximately 72% as of November 2024, following the Domestic Debt Exchange Programme (DDEP) and agreements with bilateral creditors.
However, heavy domestic borrowing persists due to Ghana’s exclusion from international capital markets.
In view of this, IEA stressed that disciplined fiscal consolidation—anchored in revenue growth and controlled spending—is key to maintaining debt sustainability.
According to the institute, the energy sector remains a fiscal burden due to legacy debts and inefficiencies.
It therefore recommended a structured approach to clearing energy sector debts through allocations from the Energy Sector Levy Act (ESLA) and natural resource revenue. “ECG is a strategic state asset that should remain publicly owned, but key functions like billing could be outsourced for efficiency.”
Additionally, IEA suggested that the budget should prioritize expanding renewable energy—hydro, solar, wind, and nuclear—especially in light of artificial intelligence (AI) advancements that demand higher energy consumption.
Reviving the Cocoa Sector
Ghana’s cocoa production has plummeted from 1,050,000 tonnes in 2020/21 to just 580,000 tonnes in 2023/24.
IEA attributed this decline to excessive bureaucracy and political interference in COCOBOD.
The institute recommended restructuring COCOBOD to reduce operational costs and removing its responsibility for “cocoa roads” financing, which should fall under the Ministry of Roads.
According to the institute, “COCOBOD must be freed from non-core financial obligations to focus on increasing cocoa output and ensuring competitive prices for farmers“,
It further noted that to sustain the sector, the government must also combat illegal mining in cocoa-growing regions and expand local cocoa processing capacity.
Despite inflation easing to 23.1% in February 2025, it remains well above the Bank of Ghana’s target of 8% (+/-2%).
As such, the IEA advised the central bank to complement its policy rate with direct interventions targeting food prices, energy costs, and exchange rate stability.
“Curbing chronic cedi depreciation will require a mix of export expansion, import substitution, stronger local ownership of the economy, and robust forex reserves.”
Institute of Economic Affairs (IEA)
Additionally, Ghana’s financial sector—still reeling from macroeconomic instability and the 2018-19 banking sector clean-up—requires further strengthening.
IEA suggested recapitalization initiatives and activating the Financial Sector Support Facility (FSSF) to assist banks affected by the DDEP.
With Ghana’s economic challenges persisting, the IEA’s expectations for the 2025 budget highlight the need for fiscal discipline, improved revenue mobilization, targeted expenditure, and sectoral reforms.
This budget will serve as a crucial test of the NDC government’s ability to steer the economy toward stability and recovery.
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