Fiscal policy implementation poses downside risk to inflation – BoG

The Bank of Ghana has described the implementation of the government’s fiscal policy in 2026 as posing a downside risk to inflation.

According to its Monetary Policy Report, the US-Iran conflict, with its impact on crude oil prices, may put pressure on the government to offer periodic reliefs, which may pose some challenges to the budget.

“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”.

It, however, assured that the government remains committed to controlling expenditure, boosting efficiency gains, and adhering to value-for-money standards.

At the same time, it pointed out that the government aims to strengthen domestic revenue mobilisation to enable it to meet debt service obligations, thus ensuring long-term debt sustainability.

“It must also be noted that the full completion of bilateral and commercial debt restructuring is expected to lead to an increase in future debt service payments”.

With respect to debt sustainability, it called for the strengthening of fiscal management to reduce the rate of debt accumulation and the resulting debt 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. In the long term, higher domestic savings will be required to meet external debt repayments, with potential implications for exchange rate stability”, it added.

The Central Bank concluded that sustained real Gross Domestic Product growth, lower real interest rates, and continued exchange rate stability are the prerequisites for improving Ghana’s debt sustainability and preserving its status of moderate risk of debt distress.