By Ebenezer Chike Adjei NJOKU
The Institute of Economic Affairs (IEA) has outlined its key expectations for the 2025 Budget and Economic Policy, with particular emphasis on fiscal consolidation, enhanced revenue generation and structural reforms in key sectors.
The budget, which will be presented by Finance Minister Dr. Casiel Ato Forson today, has garnered much attention as stakeholders seek the new administration’s concrete steps toward tackling the prevailing high inflation, currency depreciation and mounting debt which have undermined the modest growth recorded last year.
“The budget is expected to have a strong fiscal consolidation bias, which is necessary to restore macroeconomic stability and debt sustainability,” the IEA stated.
At the same time, it should “indicate a path to economic recovery anchored by a strong revenue mobilisation drive and rationalised and efficient expenditure strategy,” the institute added.
Strengthening revenue mobilisation
A major concern for the IEA is a persistently low tax revenue-to-GDP (Gross Domestic Product) ratio, which stands in the region of 13 percent; significantly below the 20-25 percent recorded by peer middle-income countries.
Nonetheless, the institute expressed support for government’s decision to abolish the E-Levy, Covid Levy and Emissions Tax, describing them as “nuisance and/or obsolete taxes”.
However, it argued that the Betting Tax should be retained – albeit at a reduced rate of 5 percent rather than the current 10 percent, as it serves both “revenue and deterrence purposes”.
To offset revenue losses from tax cuts, which have been estimated at approximately GH¢6.4billion, IEA recommended an aggressive push to close tax loopholes including trade mis-invoicing, tax exemptions and property tax under-collection.
Additionally, it calls for the use of digitisation to widen the tax base and modernise tax administration.
“The tax system must be rid of complexity and multiplicity through simplification and reduction of rates, where necessary,” the institute stated.
IEA also proposed a windfall tax on super-profits earned by extractive industries, telecoms and banks, noting that such a tax is already in place in Australia, the UK, India, Italy, Hungary and the United States.
“Ghana should not be scared that imposing such a tax will drive away the companies. Many other countries are doing the same, so the companies have nowhere else to go,” it said.
Beyond taxation, the economic policy think-tank urged government to renegotiate fiscal terms in natural resource contracts to ensure greater local benefits.
“The country needs to find extra resources for this purpose… Ghana does not have to seek extra resources from outside as it has traditionally done,” it noted, restating its position that value addition is the most ideal pathway to economic self-sufficiency.
Expenditure rationalisation, debt control
The IEA sees expenditure rationalisation as a critical component of fiscal consolidation. While acknowledging that some cuts are necessary, it warned against reductions that could harm essential sectors such as health, education and infrastructure.
Currently, capital expenditure (CAPEX) is less than four percent of GDP – a level the institute describes as inadequate.
“It is our expectation that the 2025 budget will mark the beginning of turning around budgetary allocations to capital expenditure. CAPEX should be progressively increased to at least 10 percent of GDP over the medium-term toward accelerating growth, fostering job creation and improving living standards,” the IEA stated.
The institute also expressed support the proposed establishment of an Independent Value-for-Money Department (IVMD), which it estimates could save revenue equivalent to the entire CAPEX budget. It also backs efforts to build fiscal buffers, particularly through the Sinking Fund which the new administration has pledged to make “fully functional”.
Debt levels remain a concern despite recent restructuring efforts under the Domestic Debt Exchange Programme (DDEP), IEA noted.
While the programme reduced the public debt profile to around GH¢721billion at the last official statement, IEA warned that increased domestic borrowing could pose new risks.
“It will require the maintenance of a strong fiscal consolidation effort to keep public debt on the envisaged sustainable path. This in turn will require a strong revenue mobilisation effort along with expenditure rationalisation,” it said.
Sectoral reforms
In the energy sector, the IEA called for ring-fencing and gradually liquidating legacy debts while minimising further accumulation. It describes the Electricity Company of Ghana (ECG) as the “most inefficient institution in the energy value chain” – citing high distribution losses, outdated equipment and widespread power theft.
However, it opposes full privatisation of ECG… arguing instead for targetted outsourcing of certain operations and the introduction of strict Key Performance Indicators (KPIs) to improve efficiency.
For the cocoa sector, IEA highlighted the sharp production decline from 1.05 million tonnes in 2020/21 to 580,000 tonnes in 2023/24. It attributed this primarily to bureaucratic inefficiencies and political interference at the Ghana Cocoa Board (Cocobod), which has led to ballooning operational costs and indebtedness.
“As a priority, Cocobod needs to be restructured to reduce its huge costs,” the institute stated.
It also urged government to increase local cocoa processing and offer competitive producer prices to discourage smuggling.
For the financial sector, IEA calls for a phased recapitalisation plan for financial institutions, especially banks. This it wants supported by regulatory forbearance and an operational Financial Sector Support Facility (FSSF), as proposed by the IMF.
Monetary policy and exchange rate stability
Inflation remains elevated, standing at 23.1 percent as of February 2025; well above the Bank of Ghana’s (BoG’s) six to 12 percent target. While monetary policy has remained tight – with the policy rate only slightly reduced from 30 percent to 27 percent over two years – IEA argued that inflationary pressures stem largely from food prices, energy costs and exchange rate volatility.
It urged closer collaboration between the central bank and government agencies to directly tackle these supply-side factors.
Exchange rate instability remains another concern, with the cedi depreciating by 28 percent in 2023 and nearly 20 percent in 2024.
For this, the IEA outlined a five-pronged approach to stabilising the currency – viz export expansion and diversification, import substitution, increased local ownership of the economy, stronger foreign exchange reserves and stricter enforcement of forex market regulations.
