Ghana’s fiscal space remains severely limited despite recent positive economic indicators, according to an analysis by the Institute of Economic Research and Public Policy (IERPP). The institute warns that headline improvements may not reflect the country’s underlying financial position.
The IERPP, through its Executive Director, Prof. Isaac Boadi, questions whether Ghana’s recent economic gains have translated into genuine fiscal flexibility. The analysis highlights that while Ghana has seen an improved debt-to-GDP ratio, lower inflation, and currency stability, significant constraints persist.
This assessment comes as Ghana navigates a period of economic recovery, with the government aiming to restore macroeconomic stability. The IERPP’s findings suggest that the perceived improvements might be superficial, challenging the narrative of a robust economic rebound and raising concerns about the sustainability of current fiscal policies.
Prof. Boadi stated that true fiscal space extends beyond available government funds. It depends on the state's ability to meet existing obligations while still having room to invest, borrow, and respond to economic shocks. He noted that data from the Bank of Ghana’s Summary of Economic and Financial Data, released on July 21, 2026, presents a mixed picture of Ghana’s fiscal health.
The IERPP analysis points out that Ghana’s public debt-to-GDP ratio declined from 51.1% in April 2025 to 41.5% by January 2026. Inflation also fell significantly, from 13.7% in June 2025 to 3.2% in March 2026. The Monetary Policy Rate was reduced from 28% to 14%, and the cedi recorded significant appreciation during parts of 2025.
However, Prof. Boadi argued that some of these improvements do not necessarily represent stronger fiscal fundamentals. He explained that the reduction in the debt ratio was partly driven by the rebasing of Ghana’s Gross Domestic Product (GDP). This rebasing increased the size of the economy on paper without a corresponding increase in actual output. “The debt ratio fell mainly because the denominator moved, not the numerator,” he stated, emphasizing that domestic debt in cedi terms continued to rise during the period.
The IERPP Executive Director also raised concerns about government spending patterns. Capital expenditure remains low compared to recurrent expenditure and debt obligations. This limits the government’s ability to undertake major infrastructure projects and other investments crucial for long-term growth. “Nearly everything the state collects is absorbed by recurrent spending and debt service, which is the textbook definition of no fiscal space,” Prof. Boadi asserted.
The institute further expressed concern about the government’s increasing reliance on domestic financing, including borrowing from the banking sector. Net claims on government increased significantly between June 2025 and April 2026 before easing slightly. This situation could affect private sector access to credit, hindering economic expansion.
IERPP also warned that some factors supporting Ghana’s economic recovery have begun to weaken. The cedi, after strong appreciation in 2025, depreciated in every month of 2026. Inflation increased from its March low of 3.2% to 5.3% by June. The institute highlighted declining foreign exchange reserves and falling cocoa prices as additional risks to Ghana’s economic stability.
Gross International Reserves declined from $14.16 billion in the first quarter of 2026 to $12.94 billion in the second quarter. Import cover reduced from 5.7 months to five months, according to the analysis. Prof. Boadi also raised concerns about vulnerabilities within the banking sector, including non-performing loans and the pressure government borrowing could place on financial institutions.
IERPP concluded that Ghana’s current economic situation represents fragile stabilization rather than expanded fiscal freedom. The institute called for caution in interpreting recent economic gains. It argued that government policy should focus on strengthening revenue mobilisation, protecting reserves, and creating sustainable conditions for investment rather than assuming broad fiscal flexibility. Decision-makers and markets will closely watch the government's response to these warnings, particularly regarding fiscal discipline and investment strategies.