The Institute of Economic Affairs (IEA) has issued a urgent appeal for Ghana’s government to dramatically increase capital expenditure (CAPEX) to at least 10% of GDP over the medium term, warning that the current allocation of 3–4% stifles long-term economic progress.
The demand, outlined in the IEA’s November–December 2024 Economic Outlook report, comes as President John Mahama’s administration prepares its inaugural budget under the constraints of an IMF-backed fiscal program and mounting pressure to prioritize job creation and infrastructure development.
“Persistently low capital spending is incompatible with Ghana’s growth ambitions,” the Accra-based think tank asserted, noting that CAPEX has languished at 1.2% of GDP as of August 2023, far below the year’s target of 1.8%. Domestic-funded CAPEX fared worse, hitting just 0.3% of GDP against a 0.7% goal, while foreign-financed projects reached 0.8% versus a 1.1% target. For 2024, the government projects CAPEX to rise to 2.7% of GDP, but the IEA insists this remains insufficient to address infrastructure gaps in energy, transport, and social services.
The push for higher investment clashes with fiscal realities. The Mahama government inherited a debt-to-GDP ratio of 74.6% as of December 2024—a marked improvement from prior years but still elevated. Meanwhile, pre-election pledges to scrap taxes like the e-levy and Covid levy threaten to strip GH¢6.37 billion from state coffers in 2025 alone, necessitating tighter spending controls or alternative revenue streams. These cuts, popular with voters, complicate efforts to align with IMF-mandated deficit reductions, which require slashing the overall fiscal shortfall to -2.7% in 2025 from -3.5% this year.
“The math is brutal,” said economist Kwame Asare, a former Bank of Ghana advisor. “You can’t simultaneously promise tax relief, comply with IMF austerity, and ramp up infrastructure. Something has to give.” The IEA argues that structural reforms—particularly in natural resource governance and cocoa sector revitalization—could unlock new revenue, but such measures face political and bureaucratic hurdles.
Growth figures further muddy the waters. While Ghana’s economy expanded by 7.7% year-on-year in Q3 2024, analysts caution that the surge relies heavily on temporary factors like post-pandemic recovery and commodity price spikes. The IMF forecasts a slowdown to 4.4% growth in 2025, well below the 8–10% rates the IEA deems achievable with strategic investment.
Central to the debate is Ghana’s energy sector, burdened by $1.6 billion in legacy debt, and its cocoa industry, which has seen production plummet to a 15-year low. The IEA urges a “comprehensive rescue plan” for both sectors, emphasizing that without reliable power and agricultural modernization, private investment will remain elusive.
As the March budget deadline looms, observers question whether the government can reconcile its populist agenda with the IEA’s growth blueprint. “Prioritizing CAPEX isn’t just about building roads,” the report stresses. “It’s about laying the foundation for a resilient, diversified economy.” With youth unemployment at 19% and inflation hovering near 18%, the stakes for Ghana’s fiscal choices have never been higher.
