By Felix Larry Essilfie (Dr)
In the first quarter of 2025, Ghana embarked on what may prove to be one of the most consequential episodes of fiscal consolidation in its post-crisis history, guided by Finance Minister Dr. Cassiel Ato Forson’s three-pillar framework of expenditure rationalization, enhanced tax compliance, and digitalization of revenue administration.
Anchored in the benchmarks of the IMF’s Extended Credit Facility, the policy package sought simultaneously to restore macro-fiscal balance, strengthen public-financial‐management (PFM) systems, and rebuild market confidence.
From the outset, the framework exhibited a high degree of internal coherence: by targeting revenues and grants at GH₵ 223.8 billion (17.2 percent of GDP) against overall expenditures of GH₵ 269.1 billion (20.7 percent of GDP), the design implied a domestic financing gap of GH₵ 36.9 billion that would need to be covered through a disciplined combination of revenue uplift—representing approximately 0.8 percent of GDP—and nominal expenditure cuts equivalent to roughly 1.0 percent of GDP. Such parameters align closely with the predictions of a well-specified fiscal reaction function, in which the primary balance responds positively to rising debt burdens.
With Ghana’s debt forecast at about 80 percent of GDP in 2025, a long-run primary surplus of 1.5 percent of GDP emerges as the minimum threshold required for stabilization and the Forson framework was calibrated to exceed this benchmark.
The macroeconomic trade-offs of this approach were both anticipated and empirically quantifiable. In the near term, subsidy rationalization and wage restraint were projected to impose a drag of between 0.3 and 0.5 percentage points on real GDP growth; yet this contractionary impulse was expected to reverse by the medium term, yielding a 0.5 percentage-point gain through diminished macroeconomic uncertainty and private-sector crowding-in.
Concurrently, fiscal tightening was modelled to reduce aggregate demand sufficiently to ease headline inflation by up to 3–4 percentage points over twelve months—assuming the central bank maintained a neutral monetary stance—and thereby facilitate a return to the Bank of Ghana’s 8 ± 2 percent target band. Under an illustrative debt sustainability analysis, the narrowing of the fiscal deficit from 6.5 percent of GDP in 2024 to approximately 3.5 percent in 2025, combined with a 2 percent real growth rate, was estimated to lower the debt-to-GDP ratio by some four percentage points, stabilizing it near 78 percent by 2026 instead of rising toward 85 percent in the absence of reforms.
Moreover, by reducing treasury-bill issuance to close the financing gap, the policy implicitly sought to moderate exchange-rate depreciation—from around 12 percent in 2024 to near 6 percent in 2025—thus alleviating imported inflation pressures and strengthening external stability.
Underpinning these projections was a clear theoretical foundation. Standard small-open-economy IS–LM analysis predicts that fiscal consolidation shifts the IS curve inward, contracting output and—under a flexible exchange-rate regime—either appreciating the currency or slowing its depreciation.
Simultaneously, debt-dynamics relationships of the form Δ(D/Y) ≃ (r – g)·(D/Y)_t – PB (where r denotes the real interest rate, g denotes real GDP growth, and PB denotes the primary balance) demonstrate how even modest primary surpluses—on the order of 1.5 percent of GDP—can exert a powerful stabilizing effect on the debt trajectory when r exceeds g, as is currently the case in Ghana. By explicitly linking each reform pillar to such models, the policy design enjoyed a level of analytic rigor rarely seen in past consolidation efforts.
Yet the passage from macro-framework to on-the-ground fiscal discipline is never straightforward. Ghana’s PFM architecture remains beset by chronic shortcomings. Cash-flow management weaknesses—manifest in delayed budget approvals and tardy transfers to subnational governments—have historically generated intra-year shortfalls that crystallize as expenditure arrears.
It is precisely such arrears, projected at GH₵ 56.9 billion, that risk undermining the discipline imposed by the consolidated budget unless the Treasury Single Account (TSA) expands its scope and enforcement.
Equally problematic are off-budget funds and contingent liabilities, especially the guarantees extended to state-owned enterprises, which frequently escape public scrutiny and distort the genuine financing gap. Without transparent reporting of these obligations, unforeseen recapitalizations could obliterate the projected savings.
Finally, recurrent Auditor-General findings of unauthorized deviations from budget ceilings point to audit loopholes that erode both fiscal credibility and the efficacy of corrective mechanisms.
The three reform pillars themselves carry significant implementation risks. Expenditure rationalization, especially subsidy reductions, has historically encountered social resistance: the 2018 power-sector subsidy adjustment yielded only a 0.2 percent-of-GDP saving against a target of 0.6 percent, as public protests forced partial rollbacks.
To avert a repeat, the current framework proposes targeted safeguard mechanisms—particularly exemptions for the most vulnerable households—though the precise modalities of such lifeline tariffs remain underdeveloped. On the revenue side, digital compliance initiatives promise substantial gains: Ghana’s objective of achieving an additional GH₵ 5 billion through enhanced VAT and income-tax compliance echoes Kenya’s success with iTax, which boosted compliance by roughly 4 percent of GDP over three years.
Still, the Kenyan experience underscores the necessity of extensive stakeholder training and robust system upgrades; under-investment in these preparatory steps could delay the envisioned revenue uplift and thus undercut consolidation momentum.
Early gauge of policy credibility can be found in Q1 2025 outturns, which reveal actual expenditure at 0.5 percentage point below the budgeted trajectory.
This deviation constitutes a positive signal to international creditors, as measured by a standard signal-extraction framework: preliminary calculations suggest a reduction in sovereign-spread premiums of approximately 50 basis points, trimming annual debt-service costs by an estimated GH₵ 1.2 billion.
Such confidence effects may prove self-reinforcing, as lower debt-service requirements create fiscal space for further reforms and soften the social impact of continued austerity.
Institutionally, the consolidation agenda demands complementary reforms to lock in gains. A binding structural-deficit rule—capped at, say, 3 percent of GDP—and embedded in statute with automatic corrective triggers could help forestall future slippages. Strengthening TSA enforcement, by mandating that all revenues and expenditures transit through a single account, would close off avenues for off-budget operations.
Likewise, empowering Parliament’s Budget Committee with enhanced technical capacity would ensure real-time scrutiny of mid-year budget reviews and supplementary estimates, preventing ad-hoc reallocations that dilute fiscal targets.
To sequence these measures effectively, the article proposes three stages. First, rapid TSA integration should be prioritized by the third quarter of 2025, as this step offers immediate improvements in cash-management and transparency. Second, subsidy rationalization should be piloted within the power sector, accompanied by compensatory lifeline tariffs for vulnerable households to mitigate social backlash.
Third, digital tax platform enhancements ought to proceed in phases, beginning with large taxpayers to build operational credibility before expanding to small and medium enterprises, thereby allowing iterative troubleshooting and reducing rollout risk.
Beyond these core pillars, Ghana’s broader reform agenda should encompass tax-policy adjustments—such as broadening the VAT base by curtailing exemptions, which could yield an additional 0.4 percent of GDP in revenue—and the institutionalization of performance-based budgeting.
Linking budget allocations to measurable outputs and requiring quarterly performance reports would not only foster fiscal discipline but also enhance accountability within ministries. Finally, a formal fiscal-monetary coordination council, bringing together the Ministry of Finance and the Bank of Ghana, would ensure that liquidity operations and fiscal priorities reinforce rather than offset one another, preserving the delicate balance between inflation control and growth support.
In summary, Ghana’s fiscal consolidation framework in Q1 2025, under the stewardship of Finance Minister Dr. Cassiel Ato Forson, reflects a rare and commendable alignment of analytic rigor, macro-fiscal coherence, and institutional ambition—elements seldom achieved in post-crisis fiscal settings.
The policy design is anchored in technically sound fiscal reaction models and debt dynamics equations, which quantify the necessary primary surplus to stabilize Ghana’s debt trajectory, while maintaining consistency with inflation targets and medium-term growth prospects.
The consolidation strategy carefully balances expenditure rationalization with enhanced domestic revenue mobilization, ensuring that fiscal adjustments support, rather than undermine, macroeconomic stability.
Moreover, the integration of fiscal and monetary objectives—particularly through reduced fiscal deficits that ease exchange rate pressures and support disinflation—demonstrates a high level of macroeconomic coordination.
What distinguishes the framework further is its institutional depth: the push for legally binding fiscal rules, accelerated Treasury Single Account (TSA) enforcement, strengthened parliamentary oversight, and the digitization of revenue administration signal a forward-looking agenda that aims not only to stabilize the present, but also to structurally transform Ghana’s public financial management architecture.
This confluence of technical design, policy coherence, and institutional reform reflects an uncommon policy maturity and offers a compelling model for other emerging economies navigating fiscal recovery under IMF-supported programs.
Nonetheless, the successful implementation of this framework is not without challenges. Persistent weaknesses in PFM systems, the socio-political sensitivities surrounding subsidy rationalization, and the capacity constraints associated with scaling digital compliance initiatives present significant risks.
These vulnerabilities underscore that technical soundness in policy design must be accompanied by strong execution capabilities and sustained political commitment.
Therefore, the credibility and durability of the consolidation effort will depend on the government’s ability to judiciously sequence reforms, embed institutional safeguards, and uphold fiscal transparency.
If these conditions are met, Ghana’s consolidation framework holds the potential not only to arrest unsustainable debt accumulation but also to catalyze a transition toward a more resilient fiscal regime.
The writer is the Executive Director, IDER
