Inflation has fallen to a 25-year low of 3.3 percent, the exchange rate has stabilised at GH¢10.87 to the US dollar, and the policy interest rate has been eased to 14 percent.
The fiscal position has improved significantly, with a primary surplus of 2.6 percent of GDP recorded at the end of 2025 and public debt declining to 45.3 percent of GDP. These developments signal a restoration of policy credibility after a difficult adjustment period and provide a foundation for renewed economic confidence.
Yet beneath these gains lies a deeper structural concern, one that threatens to undermine the development trajectory if left unaddressed. The composition of public expenditure remains heavily skewed towards employee compensation and debt service, leaving limited fiscal space for capital investment. In effect, the economy is stabilising without adequate repositioning for development.
At present, employee compensation accounts for roughly one-third of total government expenditure, while debt service absorbs an additional significant share. Together, these categories pre-commit approximately 70 percent of available fiscal resources.
This leaves only between 5 and 8 percent for capital expenditure, investment in infrastructure, technology, and productive capacity that is essential for long-term growth.
The implications are far-reaching. Public spending is increasingly consumption-driven rather than investment-led. While fair remuneration for public sector workers is both necessary and constitutionally grounded, the unchecked expansion of the wage bill constrains the ability of government to finance roads, schools, hospitals, and digital infrastructure. The result is a paradox: payroll obligations are met, yet the complementary inputs required for effective service delivery remain underfunded.
This paradox persists even as macroeconomic indicators improve, highlighting the disconnect between short-term stabilisation and long-term fiscal structure.
This imbalance also has broader macroeconomic consequences.
High recurrent expenditure contributes to persistent fiscal pressures, which often necessitate borrowing. This, in turn, can crowd out private sector investment by raising the cost of credit. While the policy rate has fallen, commercial bank lending rates remain elevated at 22–24 percent, indicating a weak monetary transmission mechanism that continues to constrain private sector credit, particularly for small and medium-sized enterprises that are central to the economic structure.
At the same time, reliance on external financing to support development projects continues, raising concerns about debt sustainability and policy autonomy.
The current situation can best be understood by distinguishing between macroeconomic stabilisation and fiscal structure. Stability concerns aggregates, such as inflation, fiscal balances, and exchange rates, while development depends on how resources are allocated. Significant progress has been made in stabilising macroeconomic aggregates, but the allocation of expenditure remains misaligned with development priorities.
In practice, fiscal consolidation has been achieved largely through expenditure compression, with capital spending bearing a disproportionate share of the adjustment burden. Unlike wages, which are institutionally and politically rigid, capital expenditure is more flexible and easier to defer. As a result, the path to stability has inadvertently reinforced a consumption-heavy fiscal structure.
The outcome is what may be described as a “stable but constrained” economy. Macroeconomic indicators are improving, inflation at a 25-year low, reserves robust at US$14.8 billion (5.8 months of import cover), and the currency strengthened yet the capacity for long-term growth and structural transformation remains limited.
Infrastructure deficits persist, project implementation is uneven, and public sector productivity is weakened by inadequate resources. Credit growth to the private sector is only gradually recovering and remains below potential.
This pattern is not unique. In many post-crisis adjustment contexts, stabilisation is the first phase, focused on restoring macroeconomic balance. The second, and more demanding, phase involves restructuring public expenditure to support growth and development. The economy appears to be at this critical juncture.
The policy challenge, therefore, is not to reverse stabilisation gains but to deepen them through strategic reallocation. Managing the growth of the wage bill is central to this effort.
This does not imply arbitrary cuts, but rather improved efficiency through payroll audits, digital human resource systems, and stronger links between pay and productivity. At the same time, deliberate measures are needed to protect and expand capital expenditure, including fiscal rules that prioritise investment and reforms in public investment management to ensure value for money.
Innovative financing mechanisms, such as public-private partnerships, can also help bridge the infrastructure gap without placing excessive strain on public finances. However, such approaches must complement, not substitute for, a disciplined and development-oriented fiscal framework.
Ghana stands at an important fiscal crossroads. The economy has achieved macroeconomic stability, but stability alone is not sufficient. Without a deliberate shift towards investment-led spending, there is a risk of entrenching a cycle of high consumption, low investment, and modest growth.
The task ahead is clear: to convert macroeconomic stability into developmental momentum. This requires ensuring that the fiscal space created through adjustment is not absorbed by recurrent expenditure, but directed towards building the productive foundations of the economy.
Stability must not become an end in itself. It must serve as a platform for transformation.
