Maintaining strict fiscal discipline is essential

Ahead of presenting the comprehensive 2025 budget – tentatively set for March 11, 2025 – the themes of fiscal prudence and investor confidence have emerged as central to the nation’s economic strategy.

Economists and financial analysts have noted that maintaining strict fiscal discipline is essential to restoring macroeconomic stability and fostering sustainable growth.

Courage Boti, an economist at GCB Bank, articulated the prevailing sentiment among investors: “What investors are looking for from the budget is prudence – sustaining, in fact staying, the course. That is what I think everybody is looking out for”.

This, he noted, puts a spotlight on the need for government adherence to its fiscal consolidation path, especially in view of existing commitments under the International Monetary Fund (IMF) programme.

Earlier this week, President John Dramani Mahama affirmed his administration’s commitment to the US$3billion IMF Extended Credit Facility arrangement, stating that while the country does not intend to exit the programme or immediately seek to extend it, he does not rule out the possibility of making adjustments to better-reflect local realities.

This approach aims to balance international obligations with domestic economic conditions.

The IMF has set a borrowing cap for the country, limiting external loans to a maximum of US$250million for 2025. This restriction is part of a memorandum of understanding with the Official Creditor Committee, designed to prevent excessive debt accumulation and encourage fiscal responsibility.

In alignment with these fiscal constraints, government has demonstrated its commitment to financial obligations by disbursing GH¢6.081billion on February 17, 2025, to bondholders under the Domestic Debt Exchange Programme, as it endeavours to uphold investor trust and maintain market stability.

In a commentary last month, domestic policy think-tank the Institute of Economic Affairs (IEA) called for the 2025 budget to include a comprehensive strategy addressing the energy sector’s mounting legacy debt.

Cutting the figure – which was pegged at US$2.5billion during the most recent State of the Nation Address – and addressing perennial losses by one of the most significant players, Electricity Company of Ghana (ECG), is deemed crucial for restoring financial sustainability and ensuring long-term economic health.

Parliament has already approved a GH¢68.13billion ‘mini-budget’ to fund government operations for the first quarter of 2025. This provisional budget aims to prevent a government shutdown and ensure continuity of essential services until the full budget is presented.

The upcoming budget is expected to serve as a credible roadmap for the nation’s economic transformation, balancing ambition with fiscal responsibility.

As Mr. Boti stated: “The budget should inspire further confidence, then we can see the cedi’s resilience supported. Hence, we can see the scope for further disinflation going forward”.

The cedi showed a mixed performance last week, with some weakness in bank-to-bank trading due to limited foreign currency availability while holding firm in consumer markets where demand remained low.

The local unit managed to gain ground against the US dollar, finishing at GH¢15.62 for a 0.48 percent weekly improvement. While maintaining its position against the British pound at GH¢19.50, it slipped slightly versus the euro, dropping 0.31 percent to GH¢16.25.

According to Databank’s market analysis, the cedi is expected to maintain its current position – with trading likely to stay between GH¢15.5 and 15.7 to the dollar through this week, helped by moderate business demand.

However, they warn that the longer-term picture is less certain as reduced foreign exchange inflows combined with anticipated repatriation payments and increasing demand could put pressure on the currency’s stability.

“The outlook for coming months remains cautious, with diminishing FX support amid repatriation and rising demand pressures potentially threatening the cedi’s stability,” Databank explained in a note.

In preparation for the budget presentation, an IMF staff team led by mission chief Stéphane Roudet visited the country from February 10 to 14.

The mission engaged in discussions with government officials and key stakeholders, focusing on the country’s macroeconomic outlook and policy direction. These engagements are expected to inform the policy framework underpinning the 2025 budget and assess progress under the IMF arrangement.

The World Bank has also highlighted necessity for stringent fiscal reforms, attributing persistent fiscal challenges to a lack of budget discipline.

Unchecked public spending and surging interest payments have exacerbated financial constraints, underscoring the need for a disciplined fiscal framework to restore economic confidence and attract sustainable investments.