The World Bank believes that weak expenditure controls enabled a vicious circle leading to reduced fiscal space and unsustainable debt accumulation, particularly over-reliant on external commercial debt, this being made worse by declining tax revenue in the years preceding the outbreak of the country’s still ongoing economic crisis.
Among its key findings in the Ghana Public Finance Review, the Bretton Woods institution indicated that the lack of fiscal discipline was marked by weak budgetary institutions, high fiscal liabilities from the financial and energy sectors, and insufficient revenue collection.
“Again, a costly clean-up of the financial sector and ongoing losses in the energy sector increased fiscal pressures”, the report titled “Building the Foundations for a Resilient and Equitable Fiscal Policy” asserted.
“With precarious fiscal conditions, the prolonged and expensive fiscal response to the COVID-19 and the subsequent deterioration of global conditions plunged Ghana into a full-fledged crisis – and into debt distress – in 2022.”
Also, the Bank emphasized that Ghana’s fast Gross Domestic Product (GDP) growth, fuelled by debt, left it highly vulnerable to global shocks.
The report, however, noted that Ghana has made progress toward economic stabilisation but warned that more needs to be done to meet monetary and fiscal targets and create lasting fiscal space.
It proposed that stronger domestic revenue mobilisation is necessary to create fiscal space for critical development priorities. Currently, Ghana’s tax collection rate falls below that of its peers, although not for all taxes
Consequently, the Country Director for Ghana, Liberia, and Sierra Leone, Robert Taliercio, while speaking at the launch of the report, cautioned Ghana against making a premature return to international capital markets, warning that such a move could undermine the country’s recent economic recovery.
He warned that an early return could send negative signals to investors, leading to a reversal of gains made under Ghana’s debt restructuring efforts and exposing the nation to unsustainable borrowing costs.
His warning follows Ghana’s successful restructuring of both domestic and external debts, which secured significant relief under the US$3 billion International Monetary Fund’s Extended Credit Facility (ECF) programme.
While acknowledging these achievements, Taliercio cautioned against complacency, noting that Ghana has had a history of falling back into unsustainable financial practices when an economic crisis recedes.
“The risk now is falling into complacency with these achievements and returning to a business-as-usual mindset – a recurring error in the past. Ghana has requested a record 17 IMF programs and has been under active IMF supervision for 40 out of its 68 years of independence,” he noted.
He further stressed that rushing back to international markets for dollar funding could be counterproductive, potentially triggering a return to high borrowing costs and renewed financial instability.
Since 2022, Ghana has been locked out of international capital markets due to soaring debt levels, sluggish economic growth, and a weak balance of payments.
While the country is eager to regain investor confidence, the World Bank warns that timing and fiscal discipline will be critical in ensuring long-term economic stability.
