Senior Economist and Director of Research at the IEA, Dr. John Kwakye
The Institute of Economic Affairs (IEA) is advocating for a substantial increase in the resources allocated to capital expenditure (CAPEX) to at least 10 percent of gross domestic product (GPD) over the medium term.
In its Economic outlook November-December 2024, the think tank stated that it expects the next budget to set the tone for raising CAPEX from its current level of 3 to 4 percent, which the IEA described as “inimical to the long-term growth of the economy”.
“It is our expectation that the 2025 Budget will mark the beginning of turning around budgetary allocations to capital expenditure (CAPEX). Over the years, CAPEX has been squeezed to 3-4 percent of GDP, with growing recurrent expenditure. This situation is inimical to the long-term growth of the economy,” it said.
“CAPEX should be progressively increased to at least 10 percent of GDP over the medium term toward accelerating Ghana’s growth and fostering job creation and improving living standards,” the IEA added.
According to the 2024 Budget Statement, Capital Expenditure for the period ending August 2023 amounted to GH¢9.9billion (1.2 percent of GDP), compared to the target of GH¢15.4billion (1.8 percent of GDP).
Domestically Financed CAPEX amounted to GH¢2.7billion (0.3 percent of GDP) against a target of GH¢6.3billion – 0.7 percent of GDP. Foreign Financed CAPEX for the period was GH¢7.2billion (0.8 percent of GDP), compared to the target of GH¢9.1billion – 1.1 percent of GDP.
For 2024, the government projected Capital Expenditure (CAPEX) at GH¢28.7billion – 2.7 percent of GDP. Of this amount, Domestically Financed CAPEX is GH¢18.2billion. An amount of GH¢10.5billion was programmed for Foreign Financed CAPEX and this will be funded by a combination of project grants and project loans.
For context, Compensation of Employees, which includes wages and salaries, pensions, gratuities and social security, has been programmed at GH¢63.7billion, equivalent to 6.1 percent of GDP.
The report comes as President John Dramani Mahama’s administration prepares its inaugural budget, due in March, amid pressure to boost development spending while maintaining fiscal discipline under the International Monetary Fund (IMF)-supported programme.
While the nation posted year-on-year real GDP growth of 7.7 percent in the third quarter of 2024, some analysts have argued that this performance masks structural weaknesses that could impede sustained economic expansion.
The administration has inherited an economy showing signs of debt stabilisation, with total public debt declining to GH¢761billion (US$46.8 billion) by December 2024, according to official data.
The debt-to-GDP ratio has improved to 74.6 percent, offering some fiscal headroom for the new government.
However, the administration faces a complex balancing act. Pre-election commitments to abolish several revenue measures – including the e-levy, COVID-19 tax, emissions tax and betting tax – will need to be offset by enhanced revenue mobilisation efforts and expenditure controls.
Estimates suggest that scrapping these handles will result in GH¢6.37billion in lost revenue in 2025. The figure is projected to be GH¢7.37billion and GH¢8.41billion in 2026 and 2027, respectively.
The IMF programme parameters remain binding, with the overall deficit set to decline further to -2.7 percent from the projected -3.5 percent in 2024, while targeting an increased primary surplus of 1.5 percent.
Growth projections remain conservative, with the economy forecast to expand by 4.4 percent in 2025, 4.9 percent in 2026 and then stabilise at 5 percent between 2027 and 2029.
These rates fall short of what the IEA believes represents Ghana’s true potential, given its resource endowment.
The report identifies significant sectoral challenges requiring urgent attention, particularly in cocoa and energy. It calls for “a revival strategy for the cocoa sector” and advocates for “a comprehensive plan for addressing the huge legacy debt in the energy sector”.
A key constraint identified is “the lack of fiscal space to support economic development due to limited government revenue”. The report suggests structural reforms in natural resource governance, advocating changes “toward increasing Ghanaian ownership and benefits”.
