Ghana’s fiscal situation for 2026 shows encouraging signs of improvement when compared to mid year revised figures for 2025, despite apparent widening of the budget deficit, according to economic analysis by Stanbic Bank.
Jibran Qureishi, Head of Africa Research Economics at Stanbic Bank, explained that while the country’s budget deficit for 2026 appears to widen slightly on first glance, closer examination reveals genuine fiscal progress. The analysis suggests government is threading the needle between fiscal discipline and necessary development spending.
At surface level, the country’s budget deficit for 2026 appears to widen, rising to 2.2 percent of Gross Domestic Product (GDP) on a commitment basis compared to 1.8 percent expected in 2025. However, when compared to figures adjusted mid year in 2025, the deficit actually improves substantially, dropping from 2.8 percent to 2.2 percent.
Qureishi emphasized that the fiscal position looks more positive when comparing the Financial Year (FY) 2026 budget to the revised FY 2025 budget numbers. This comparison provides a more accurate assessment of government’s fiscal management trajectory than comparing current projections to initial 2025 estimates that proved overly optimistic.
The trend holds even in government’s cash flow projections, where measurement focuses on actual money movements rather than commitments. While the cash deficit is expected to widen from 2.8 percent in 2025 to 4.0 percent in 2026, the revised 2025 budget had projected a deficit of 3.8 percent, meaning the change proves less dramatic than initial figures suggest.
The difference between commitment and cash basis accounting reflects timing differences between when government commits to spending and when it actually disburses funds. The cash deficit remains higher because it captures the full cost of servicing existing debt obligations that fall due during the year.
A major driver of this fiscal improvement is expected revenue growth. Total revenue and grants are projected to climb to 268 billion cedis in 2026, up from an estimated 226 billion cedis this year. Tax revenues alone could reach 224 billion cedis, representing robust collection performance.
The revenue projections are supported by significant tax reforms announced in the 2026 budget. Government plans to reduce the effective Value Added Tax (VAT) rate from 21.9 percent to 20 percent while raising the threshold for VAT registration from 200,000 cedis to 750,000 cedis. These changes aim to provide relief to small businesses while maintaining overall revenue mobilization.
Qureishi explained that these changes strike a delicate balance between increasing tax collection and easing the burden on businesses. He noted that tax mobilization remains strong as the primary driver of revenue growth, but reforms like reducing the VAT rate and increasing the registration threshold are aimed at supporting Small and Medium Enterprises (SMEs) while broadening the tax base.
The VAT reforms work by decoupling the Ghana Education Trust Fund (GETFund) and National Health Insurance Levy (NHIL) from the VAT tax base, allowing both levies to become subject to input tax deductions. This technical change reduces the effective VAT burden on businesses by approximately 5 percent while simplifying compliance.
Government also abolished the COVID 19 Health Recovery Levy, which alone will return 3.7 billion cedis to individuals and businesses in 2026. Combined with other VAT reforms, the package is expected to inject nearly 6 billion cedis into the economy, providing liquidity for households and enterprises.
The reforms extend beyond VAT adjustments to include abolishing VAT on mineral reconnaissance and prospecting activities, extending zero rating for locally manufactured textiles until 2028, and introducing digital VAT monitoring systems with fiscal electronic devices to improve compliance and transparency.
Finance Minister Dr. Cassiel Ato Forson described the reforms as creating a fairer, simpler, and more business friendly fiscal system. He emphasized that government aims to lighten the load on honest taxpayers while building a stronger foundation for national development and ensuring the tax system rewards compliance.
However, significant fiscal challenges remain. With spending expected to rise to 302.5 billion cedis in 2026, and interest payments ballooning to nearly 58 billion cedis, Ghana must manage its finances carefully to avoid fiscal strain. The interest burden reflects the accumulated cost of previous borrowing and debt restructuring.
The primary surplus target of 1.5 percent of GDP, as required by the amended Public Financial Management Act, means government plans to cover all non interest expenditures with domestic revenue. However, the overall deficit widens considerably when interest payments on existing debt are factored in, creating a balancing gap of roughly 3.7 percent of GDP.
This balancing gap underscores the heavy weight of interest obligations on public finances. Even with improved revenue performance, government must rely on additional borrowing to finance interest costs and priority programs including the Big Push Infrastructure Programme valued at 10 billion United States dollars over multiple years.
Qureishi remains cautiously optimistic despite these challenges. He suggested the data indicates Ghana is improving its fiscal position in a responsible way, even if some risks such as delays in tax reform or revenue shortfalls still exist. The economist emphasized that maintaining discipline will prove crucial to sustaining the recovery.
Economic analysts note that Ghana risks a severe crowding out effect if domestic borrowing surges in 2026. Because the balancing gap remains large and interest payments continue absorbing substantial resources, government will need to access more domestic credit to close its financing shortfall.
This could result in banks allocating more of their lending portfolio to safe government securities, pushing interest rates higher as demand for credit increases. Private businesses would then struggle to access affordable loans for expansion, investment, and production, potentially slowing job creation and weakening industrial growth.
The 2026 budget targets economic growth of 5.4 percent, inflation below 9 percent, and positions the fiscal year as a consolidation phase aimed at securing long term economic resilience. Major policy initiatives include infrastructure development, expanded agricultural support, and enhanced spending on education and health.
Government plans to conduct bond buybacks, reprofile domestic debt, and restore benchmark bond issuance to extend maturities and manage refinancing risks. These debt management operations aim to rebuild investor confidence and gradually return Ghana to moderate risk of debt distress from its current elevated levels.
Public debt has declined sharply from 61.8 percent of GDP in December 2024 to 45.0 percent by October 2025, a movement likely to influence investor sentiment positively. The reduction reflects both fiscal discipline and the impact of debt restructuring under the International Monetary Fund (IMF) supported program.
Ghana’s mid year budget review for 2025 had presented a mixed picture, with the fiscal deficit revised down to 4.2 percent of GDP from 4.8 percent, driven by optimistic revenue collection expectations. However, the first half of the year saw lower than expected revenue collections, raising questions about projection feasibility.
The current account surplus is expected to decrease as imports rise with falling inflation, potentially moving Ghana toward a current account deficit by late 2025 or early 2026. This shift would reflect increased consumption and investment activity as economic conditions normalize following years of tight fiscal policy.
Business associations have cautiously welcomed the tax reforms, particularly the COVID 19 levy abolition and VAT rate reduction. Industry groups had long criticized these measures for inflating costs during challenging economic conditions, though concerns remain about implementation and whether projected revenues will materialize.
The 2026 budget represents the first major fiscal policy statement by the John Dramani Mahama administration, which took office in January 2025. The fiscal framework attempts to balance consolidation requirements under the IMF program with political pressure to deliver on campaign promises for economic transformation and job creation.
Whether Ghana can sustain growth in 2026 will depend on how effectively government manages domestic borrowing, mobilizes revenue, and delivers investments without constraining private sector activity. The success of tax reforms in generating projected revenues without dampening economic activity will prove particularly crucial.
Stanbic Bank’s analysis suggests that while challenges persist, Ghana has established a foundation for continued fiscal improvement if government maintains discipline and reforms proceed as planned. The trajectory represents significant progress from the debt crisis that forced Ghana to seek IMF support in 2022.
