Fiscal Consolidation and Debt Management Key to Ghana’s Economic Stability– IEA

In it’s lastest economic outlook, the Institute of Economic Affairs (IEA), a Ghanaian economic policy think tank, has highlighted fiscal consolidation and effective debt management as critical pillars for ensuring the country’s economic stability.

It emphasized the importance of a budget that addresses Ghana’s growing legacy debts, particularly in the energy sector, while laying a solid foundation for financial sustainability.

As the government prepares to present the 2025 Budget, the IEA’s recommendations have sparked conversations around the measures needed to stabilize the economy and rebuild investor confidence. The think tank’s focus on these two key areas – fiscal consolidation and debt management, aligns with the ongoing challenges of limited fiscal space, mounting debts, and the need to create a competitive economic environment.

A central aspect of the IEA’s recommendations is the urgent need to resolve the enormous legacy debt in Ghana’s energy sector. The think tank stresses that these debts, if left unaddressed, could cripple the sector’s ability to provide reliable and affordable energy.

Additionally, the think tank advocated for stable and less-costly power generation to enhance the competitiveness of Ghanaian businesses.

High energy costs have long been a burden on industries, limiting their ability to scale operations and compete regionally. By focusing on energy sector reforms, the government could unlock new opportunities for growth while reducing the fiscal strain associated with subsidies and inefficiencies.

The 2025 Budget will be presented against the backdrop of the International Monetary Fund’s (IMF) Extended Credit Facility (ECF) program, which seeks to restore macroeconomic stability. The IEA highlighted that adhering to the fiscal consolidation measures under the ECF is essential for Ghana to avoid further debt restructuring and maintain the current trajectory of economic recovery.

The ECF program projects a reduction in Ghana’s fiscal deficit from -3.5% in 2024 to -2.7% in 2025. At the same time, the primary surplus is expected to increase from 0.5% to 1.5%. These targets are crucial to maintaining debt sustainability and ensuring the country’s financial obligations remain manageable.

“The tight fiscal stance is necessary to inspire investor confidence and prevent another painful debt restructuring,” the IEA suggested.

While fiscal consolidation is critical, the IEA also underscored the importance of tapping into Ghana’s natural resources to increase government revenue. The think tank argues that the current fiscal regimes in the natural resource sector require reform to maximize benefits for Ghanaians.

“Increasing Ghanaian ownership and promoting local value addition to natural resource products should be prioritized,” the IEA recommended.

By processing raw materials locally, the country can generate higher revenues, create jobs, and stimulate economic development, further reducing Ghana’s overreliance on foreign exchange earnings from raw commodity exports, which are subject to price fluctuations on global markets.

The IEA’s Economic Outlook also called for reforms in Ghana’s tax policy to ease the financial burden on households and businesses. Taxes such as the e-levy, COVID-19 tax, and emissions tax have faced public backlash due to their perceived negative impact on economic activities.

The IEA suggested that abolishing these taxes could provide much-needed relief to businesses while incentivizing growth. However, the resulting revenue shortfall must be addressed through measures such as broadening the tax net, plugging tax loopholes, and strengthening tax administration. The think tank believes that these steps would help Ghana achieve a more efficient and equitable tax system.

Another critical concern for the IEA is the need to prevent future debt restructuring. Ghana’s recent experience with debt restructuring caused significant disruptions to the economy, affecting investor confidence and financial markets. To avoid a recurrence, the IEA insists on disciplined fiscal management and adherence to debt sustainability targets.

“By maintaining a tight fiscal stance and prioritizing revenue generation, Ghana can reduce its debt burden and create the fiscal space needed to invest in critical sectors such as education, health, and infrastructure.”

The IEA’s recommendations for the 2025 Budget highlighted the urgent need for fiscal discipline and effective debt management to stabilize Ghana’s economy. Addressing legacy debts in the energy sector, reforming tax policies, and maximizing revenue from natural resources are all critical steps toward achieving long-term economic growth.