Ghana’s economic outlook in 2025 is very promising as the new government is building both investor confidence in the market and establishing transparency with the ministerial appointment that forms the economic management team.
However, the recurring economic challenges Ghana faces like currency depreciation, rising interest rates, and high borrowing costs, which exacerbate the burden of debt servicing is a difficult task the new administration would have to manage.
Secondly, there is limited fiscal space due to high debt servicing, which reduces the government’s capacity to invest in economic growth initiatives. How well they manage it would determine the impact on the cost of living and the cost of doing business in Ghana.
Debt servicing to revenue ratio is a key factor in measuring the fiscal health of any economy. To be fair to the ordinary person reading this article who may not understand what debt servicing to revenue ratio is: it means the proportion of the government's total revenue collected to pay off its debt obligations, which include both interest payments and principal repayments. It is a key fiscal indicator that reflects the government's ability to manage its debt in relation to its income. It is a key factor of consideration in determining a country’s credit ratings.
Total revenue and grants for 2024 stood at Gh₵74.65bn (7.1% of GDP) while expenditure stood at Gh₵101.21bn (9.6% of GDP) with a total deficit of 2.0% of GDP. What is worrisome is that about 42% of the total revenue collected is used to service debt,
High Ratio and Impact on Revenue
• Reduced fiscal space for revenue generation: The government may face challenges in allocating resources to invest in productive sectors that boost revenue, such as infrastructure, agriculture, and technology. This can stifle economic growth, which in turn limits revenue collection.
• Pressure to increase taxes: To meet debt obligations, the government might resort to increasing taxes or introducing new levies. However, this can burden businesses and individuals, potentially discouraging investment and economic activity.
• Reduced donor and investor confidence: High debt-servicing costs can signal fiscal instability, deterring foreign direct investment (FDI) and donor support, both of which are critical to Ghana’s revenue stream.
Impact on Expenditure
• Crowding out of developmental spending: With a significant portion of revenue allocated to debt servicing, less funding will be available for critical sectors such as education, healthcare, and infrastructure. This can exacerbate social and economic inequalities.
• Increased reliance on borrowing: To cover basic expenditures, the government might resort to more borrowing, further exacerbating the debt problem and increasing future debt-servicing costs.
• Cutbacks in public programmes: The government may be forced to reduce or delay social protection programs, subsidies, and public sector wage increases, leading to potential social unrest.
• Exchange rate pressure and import costs: If debt servicing involves payments in foreign currencies, it could increase demand for forex, weakening the cedi and inflating the cost of imports, including essential goods like fuel and food.
To address these challenges, Ghana could consider:
• Improving revenue mobilisation: Strengthen tax collection efficiency and compliance, reduce leakages, and expand the tax base without overburdening the economy. Cut all tax holidays and make every institution, industry and company pay tax in full without any concessions.
• Expenditure rationalisation: Prioritise spending on essential and high-return projects while cutting non-essential expenditures.
• Debt restructuring: Seek favourable terms for debt repayment, such as lower interest rates or extended maturities, to ease the fiscal burden.
• Boosting economic productivity: Focus on sectors like agriculture, mining, and manufacturing to stimulate growth and diversify revenue sources.
Recommendations for improving revenue mobilisation
The government needs to consider renegotiating terms with the International Monetary Fund (IMF) on a debt restructuring programme that requires a strategic approach that aligns Ghana’s economic needs with the IMF’s objectives.
This can be achieved through conducting a comprehensive debt sustainability analysis (DSA) by establishing a clear understanding of the country’s debt burden, repayment capacity, and long-term fiscal outlook.
The finance ministry should collaborate with the IMF and other stakeholders (e.g., the World Bank) to update the DSA, ensuring it reflects current economic realities like inflation, currency depreciation, and GDP growth prospects. Progressively build a credible case for renegotiation by clearly outlining the social and economic impacts of high debt servicing, including constraints on critical expenditures like healthcare, education, and infrastructure.
The government must demonstrate commitment to fiscal reforms already undertaken, such as improving tax collection, enhancing public financial management, or reducing inefficiencies in government spending with a focus on eliminating inflated government procurement.
On the other hand, the government should request extended repayment periods to ease short-term fiscal pressure and negotiate concessional rates to reduce the cost of borrowing. Consider seeking a moratorium on interest or principal payments to create breathing room for economic recovery.
Engage in Broad Stakeholder Consultations
Involve local stakeholders, including civil society, the private sector, and Parliament, to ensure alignment and legitimacy of the government’s negotiating stance and collaborate with bilateral creditors, multilateral institutions, and private bondholders to align restructuring terms across the board.
Prepare contingency plans by diversifying financing options like issuing diaspora bonds or partnering with development banks to reduce over-reliance on the IMF. Strengthen sectors like agriculture, mining, and manufacturing to reduce dependence on foreign funding.
Renegotiating with the IMF requires a delicate balance between Ghana’s fiscal needs and the Fund’s mandate for macroeconomic stability. A well-prepared strategy, coupled with strong domestic reforms, can improve the likelihood of securing favourable terms.
***
Jerry .J. Afolabi (PhD) is a Financial & Economic expert who believes that ordinary people can do extraordinary things when given the opportunity. He is a change-maker with the ability to easily get people to get things done for the good of humanity.Email;jelilius@gmail.com/+1405-250-1732
Latest Stories
-
What it means when Elon Musk brings his children to work
2 minutes -
Jay Asamoah Kola: Elmina Sharks player charged by GFA for alleged assault
10 minutes -
‘Sad day for tennis’ – Sinner doping ban ‘leaves sour taste’
15 minutes -
Ghana Government to pay Cocoa farmers 70% of World Market Price
21 minutes -
Dozens killed in Mali illegal gold mine collapse
41 minutes -
Ghana Police Service to investigate attack on referee Morrison at Elmina Sharks game
46 minutes -
Referee Morrison beaten at Elmina in another act of hooliganism
2 hours -
Liverpool hold on to beat Wolves and restore seven-point lead
2 hours -
Asante Kotoko bigwigs grace Nana Pooley’s one-week observation
2 hours -
Blame IGP, REGSEC for security breaches in re-run of council of state election – NPP parliamentary Caucus
3 hours -
Ghanaian scholarship students struggle as bilateral agreements leave many unprotected – Komla Bansah
3 hours -
Walewale bus attack: Death toll rises to 7
3 hours -
No official implicated in corruption would escape, regardless of their whereabouts – Aseidu Nketia
4 hours -
Some scholarship students abroad have been logged out of their university systems – Owusu Afrifa
5 hours -
Stop the lies! Nigeria did not originate highlife
5 hours