The Bank of Ghana has warned that the government's fiscal policy for 2026 could increase inflation amid a planned rise in public spending. The central bank’s latest Monetary Policy Report points to several risks tied to the scale-up in government expenditure expected throughout next year.
The report cites the ongoing US-Iran conflict as a factor that may drive up crude oil prices. This, in turn, could pressure the government to offer periodic reliefs, complicating budget management. “The rest of 2026 is expected to witness a scale-up in government spending and there are concerns over the absorptive capacity of contractors executing government projects, which could have implications for inflation,” the Bank of Ghana wrote.
Although the bank acknowledged the fiscal pressures, it said the government remains committed to controlling expenditure, improving efficiency, and adhering to value-for-money standards. It also pointed to efforts to strengthen domestic revenue mobilisation as essential to meeting debt service obligations and ensuring long-term debt sustainability.
The report warned that the completion of ongoing bilateral and commercial debt restructuring may lead to higher future debt service payments. It called for stronger fiscal management to reduce the pace of debt accumulation and the resulting servicing costs.
“The currently high proportion of short-term debt heightens rollover and refinancing risks, potentially limiting the fiscal space for productive investments and growth-enhancing expenditures,” the report stated. It added that higher domestic savings will be necessary over time to meet external debt repayments, which could affect exchange rate stability.
The Bank of Ghana concluded that sustained real Gross Domestic Product growth, lower real interest rates, and continued exchange rate stability will be necessary to improve Ghana’s debt sustainability. The country currently maintains a moderate risk of debt distress.
The warning arrives as the government prepares to increase spending on infrastructure and social projects in 2026. However, the central bank expressed doubts about the capacity of contractors to absorb the rising funds effectively, raising concerns about inflationary pressures that could emerge if the spending outpaces economic output.
Inflation in Ghana has been volatile in recent years, influenced by global commodity prices and domestic policy choices. The Bank of Ghana’s caution reflects concerns that fiscal expansion, especially amid external shocks like oil price volatility, could fuel further inflation.
The government’s efforts to mobilise more domestic revenue are intended to ease reliance on short-term debt, which currently represents a large share of Ghana’s debt portfolio. Short-term borrowing exposes the country to rollover risks and refinancing costs that can strain public finances.
Debt restructuring talks with bilateral and commercial creditors have been ongoing, with the expectation that final agreements will alter debt service schedules. However, these adjustments may increase payments in the future, placing additional pressure on the budget.
The Bank of Ghana’s report implies that without careful fiscal management, the combination of higher spending, debt service obligations, and external shocks could undermine macroeconomic stability. It emphasises the need for growth in the real economy and stable interest and exchange rates to maintain manageable debt levels.
As Ghana approaches 2026, the balance between stimulating economic growth through government spending and controlling inflation and debt sustainability will be a critical challenge for policymakers.
According to Joy Online.
