Minister of Finance, Dr Cassiel Ato Forson
Commercial banks are expected to finance about 60 percent of government capital expenditure (CAPEX) from 2026, placing them at the centre of the development agenda with what the Ghana Association of Banks (GAB) describes as a “double-edged sword” for the economy, according to its 2026 Industry Outlook.
CAPEX is projected to rise sharply from about GH¢32.7billion in 2025 to GH¢57.5billion in 2026, before increasing steadily to more than GH¢83billion by 2029 based on projections from the 2026 Budget Statement cited in the report.
The heavy reliance on domestic banks to fund this expansion reflects limited access to foreign financing and a policy preference for local funding, but it also deepens the link between fiscal outcomes and bank balance sheets.
“About 60 percent of government financing will be supported by commercial banks, indicating that a significant part of domestic financing for CAPEX is likely to create a double-edged sword for the economy,” the GAB Outlook states.
On the positive side, increased government borrowing to finance infrastructure and other capital projects is expected to support banks’ interest income and provide relatively predictable assets at a time when private sector credit growth remains cautious.
The report notes that higher capital spending tends to stimulate economic activity, improve firm-level cash flows and strengthen borrowers’ repayment capacity – which could gradually improve the quality of banks’ loan portfolios.
However, the outlook also warns that the same financing pattern could constrain credit to businesses. As banks allocate more funds for government expenditure, private sector borrowers may face higher lending rates and tighter credit conditions.
“On the other hand, this same process crowds out private sector credit, as banks reallocate funds away from businesses toward sovereign paper – pushing up lending rates and weakening private investment,” the report says.
Total government expenditure is projected to increase from GH¢269.5billion in 2025 to GH¢302.5billion for 2026, before rising to nearly GH¢439billion by 2029.
While the overall expansion is significant, the GAB report places emphasis on the changing composition of spending – highlighting the stronger focus on capital outlays relative to recurrent expenditure.
This shift comes against the backdrop of persistently high interest payments. Interest costs are projected to stabilise around GH¢57–59 billion in 2026 and 2027, before rising again toward GH¢70billion by 2028 and exceeding GH¢80billion by 2029. The report notes that debt servicing will continue to absorb a substantial share of government resources, limiting fiscal flexibility.
For banks, elevated interest payments have direct implications for sovereign risk assessment. The Outlook notes that constrained fiscal space means any slippage in revenue mobilisation could translate quickly into higher financing needs.
It also notes that the structure and sustainability of public debt remain central to banks’ capital adequacy calculations, risk-weighting of government exposures and stress-testing frameworks.
The financing mix for capital expenditure further highlights the banking sector’s role. Domestic financing of CAPEX is projected to increase from about GH¢45.5billion in 2026 to nearly GH¢69.6billion by 2029, with foreign financing rising only modestly from around GH¢12billion to about GH¢14billion over the same period. While this reduces exposure to foreign exchange risk and external refinancing shocks, it concentrates fiscal risk within the domestic financial system, the Association noted.
According to the report, this concentration reinforces the need for careful borrowing strategies. “This cautions that while CAPEX can be growth-enhancing, excessive reliance on domestic financing without careful structuring risks may deprive the private sector of adequate credit for growth and expansion,” the Outlook says.
At the same time, the GAB analysis points to early signs of easing pressure on banks from deficit financing. Total government financing needs are projected to decline from about GH¢64billion in 2026 to around GH¢44.6billion in 2027 before fluctuating moderately through 2029. While banks are expected to provide GH¢38.3billion in 2026 and GH¢46.6billion in 2027, their contribution is projected to fall thereafter to about GH¢29billion by 2029.
This gradual reduction in reliance on commercial banks is expected to create scope for a measured reallocation of balance-sheet capacity toward private enterprises, particularly small- and medium-sized firms linked to infrastructure delivery, supply chains and productive sectors.
Nevertheless, the outlook stresses that sovereign risk remains relevant for the banking industry.
“From a credit risk management standpoint, the fiscal outlook implies a gradual shift in risk dynamics rather than an immediate elimination of risk,” the report notes, adding that banks will need to continue strengthening exposure limits, conducting rigorous stress tests and closely monitoring the interaction between fiscal shocks, interest rates and asset quality.
