By Felix Larry ESSILFIE
The International Monetary Fund (IMF) has projected that Ghana’s total expenditure on wages, salaries, and social contributions could reach GHS 71.1 billion in 2025, a figure that raises serious concerns about the country’s fiscal sustainability.
This projection, coming at a time when Ghana is undergoing an IMF-supported Extended Credit Facility (ECF) program, brings to light critical issues surrounding the government’s public expenditure priorities, revenue mobilization efforts, and macroeconomic stability.
The significance of this wage bill cannot be understated, as it represents a substantial portion of government expenditure, with far-reaching implications for fiscal consolidation, debt sustainability, and economic growth.
The Ghanaian government’s wage bill has historically been one of the largest components of public expenditure, reflecting both the expansion of the public sector workforce and the frequent salary adjustments driven by inflation and political considerations. While public sector employment is crucial for governance and service delivery, its financial implications must be carefully managed to prevent undue strain on the national budget.
With projected government revenue-to-GDP typically ranging between 17.31% and 18.48%, and total revenue projections for 2025 expected to be between GH¢131.2-184.0 billion, the estimated wage bill could consume over 39-54% of domestic revenue. Such a high wage bill, relative to total revenue, raises fundamental concerns about fiscal sustainability and the government’s ability to meet its other financial obligations.
One of the immediate concerns arising from this projection is the potential crowding out of critical expenditures. Ghana is already grappling with limited fiscal space due to high public debt, rising interest payments, and pressing social needs. An unsustainably high wage bill means that fewer resources will be available for key areas such as infrastructure development, social protection programs, and capital investments.
For instance, the government’s flagship programs—such as the Free Senior High School (Free SHS) policy, the National Health Insurance Scheme (NHIS), and the Livelihood Empowerment Against Poverty (LEAP) program—require substantial budgetary allocations. If the wage bill continues to consume a disproportionately high share of revenue, the government may be forced to either scale back these programs or resort to additional borrowing, both of which could have long-term consequences.
The IMF’s ECF program for Ghana emphasizes the importance of fiscal consolidation, debt sustainability, and structural reforms as part of the broader strategy to stabilize the economy. One of the primary goals of the program is to reduce the fiscal deficit through revenue mobilization and expenditure control. However, an excessively high wage bill presents a direct challenge to these objectives.
If expenditure on wages and salaries remains elevated without a corresponding increase in government revenue, the risk of fiscal slippage becomes imminent. Such a scenario could lead to a situation where the government is unable to meet its fiscal targets under the IMF program, potentially triggering further austerity measures, tax increases, or additional borrowing.
The sustainability of Ghana’s wage bill is further complicated by longstanding structural challenges within the public sector. One of the primary issues is the bloated nature of the civil service, where government employment has expanded significantly over the years due to political recruitments and inefficiencies in public administration.
Unlike private sector employment, where wages are typically linked to productivity, public sector salaries in Ghana are largely determined by inflationary pressures and labor union negotiations. This creates a system where salary increases occur without corresponding improvements in efficiency or output, ultimately placing an increasing burden on government finances.
Payroll inefficiencies also contribute to the high wage bill, with recurring issues such as ghost workers and fraudulent payroll activities inflating government expenditure. Despite several attempts by successive governments to conduct payroll audits and clean the system, these inefficiencies persist, pointing to weak enforcement mechanisms and governance lapses. Without a comprehensive payroll management reform, wage bill pressures will continue to undermine Ghana’s fiscal efforts, further exacerbating the challenges of managing public sector expenditure.
Compounding the problem is Ghana’s weak domestic revenue mobilization, which remains far below the levels required to sustain such high expenditure commitments. The country’s tax-to-GDP ratio is currently below 15%, significantly lower than the 25-30% benchmark for lower-middle-income countries.
This means that even moderate public spending becomes difficult to sustain in the absence of adequate revenue generation. Expanding the tax base, improving compliance, and increasing efficiency in revenue collection are necessary steps if Ghana is to meet its expenditure obligations without resorting to excessive borrowing.
Given the serious implications of an unsustainable wage bill, urgent policy actions are needed to address the situation. One of the immediate measures should be a comprehensive audit of the public sector payroll to eliminate ghost workers and fraudulent salary payments.
A robust payroll management system must be put in place to ensure accountability and efficiency in government wage expenditures. Additionally, the government should implement a performance-based remuneration system that links salary increments to productivity, ensuring that wage growth does not outpace economic output.
Beyond payroll rationalization, broader public sector reforms are necessary to enhance efficiency and reduce unnecessary government employment. One possible approach is the implementation of targeted retrenchment programs that transition excess public sector workers into more productive areas of the economy. This could be supported by skills training initiatives that help displaced workers integrate into the private sector, reducing the overall pressure on the government wage bill.
Revenue mobilization efforts must also be intensified to ensure that government spending remains sustainable. Expanding the tax net to cover the informal sector, enforcing property tax collection, and leveraging digital tax systems could significantly boost government revenue. Additionally, a review of tax exemptions and a focus on minimizing revenue leakages would provide additional fiscal space to accommodate essential expenditures without excessive reliance on debt.
A more strategic approach to public sector wage management is also required to ensure long-term fiscal sustainability. One possible policy intervention is the introduction of automatic wage adjustment rules that are linked to macroeconomic conditions, preventing excessive wage growth in periods of economic downturn.
Multi-year wage agreements could also be adopted to provide greater predictability in salary adjustments, reducing the likelihood of sudden and unsustainable increases.
Ultimately, Ghana’s economic prospects in 2025 and beyond will depend on the government’s ability to implement decisive reforms that address the wage bill challenge while ensuring overall fiscal sustainability.
The IMF’s projection serves as a clear warning that without urgent policy action, Ghana risks facing prolonged fiscal distress that could undermine macroeconomic stability. While the public sector plays a crucial role in national development, its financial sustainability must be safeguarded to prevent long-term economic imbalances.
As the government navigates its fiscal policy under the IMF program, maintaining a careful balance between expenditure control and revenue enhancement will be key. Ghana’s economic recovery depends on prudent fiscal management, with a focus on ensuring that wage expenditures do not crowd out critical development spending.
Achieving this will require bold reforms, political will, and a commitment to long-term economic stability. The choices made today will determine whether Ghana can sustain its economic growth trajectory or fall back into a cycle of fiscal crises and external financial dependency.
The writer is a Development Economist, IDER
Email: [email protected]
