Preview of 2025 budget: Tight spending, lower inflation

In a strategic move ahead of today’s highly anticipated budget presentation, the Minister of Finance, Dr Cassiel Ato Forson, has said the government has significantly reduced its borrowing activities to stimulate private sector growth. 

Speaking during an X Space discussion on Sunday, he highlighted how the administration has rejected treasury bids worth billions of cedi in recent months.

In addressing the concerns about high interest rates affecting business growth, he acknowledged that excessive government borrowing had limited credit availability for private businesses.

"The current credit situation is concerning, with extremely high interest rates. Government's heavy borrowing from banks has created a situation where financial institutions prefer lending to the government rather than private enterprises,” he stated.

He assured the private sector that the new administration has begun scaling back its treasury market activities to increase credit flow to the private sector.

"We've rejected treasury bids worth GH¢10 billion in some instances, and between GH¢5-8 billion in others over the past two months and eventually, banks will need to redirect their lending toward private businesses,” he said.

T-bill rates 

Rates of the government’s primary borrowing instrument, the Treasury bill, have fallen sharply to their lowest levels in 10 years, with rates for the benchmark 91-day treasury bills dropping 17.71% at the latest auction.

Since the beginning of this year, the rates have consistently dropped, while investor appetite remains strong. Despite the drop in the rates, the government has been forced to consistently turn down bids due to oversubscription.

The 91-day bill has dropped from 27.77% at the beginning of the year to 17.71% as of today. The 182-day bill and the 364-day bill have also declined from 28.49 per cent and 29.94 per cent to 18.96% and  19.98%, respectively.

Delivering the State of the Nation Address, President John Dramani Mahama said the continuing decline in T-bill rates signalled growing investor confidence in the country's fiscal management.

Inflation 

Addressing another major concern of businesses, which is inflation, Dr Forson said the government was looking at reducing inflation to within the target band of 8% ± 2% within the year, down from the current 23.1%.

Ghana missed its 2024 inflation target by a significant margin, with December's rate of 23.8% far exceeding the government's projected target of 15% in the 2024 budget, as well as the Bank of Ghana’s target of 18%.

The rate has since dropped slightly to 23.5% in January and 23.1% in February.

Dr Forson admitted that there was a significant cost-of-living crisis, and it is getting worse. 

“We need to take steps to reverse this trend. Some of the measures include stabilising and consolidating the economy through fiscal discipline to ensure economic stability. Our goal is to bring inflation down to 8% ± 2% by the end of the year,” he said.

Budget presentation 

Today’s budget is expected to introduce initiatives meant to reduce the cost of living and doing business in the country.

It will mark a significant milestone for the new administration’s quest to reduce specific taxes, undertake widespread economic and social reforms and introduce initiatives that will stabilise the economy, generate revenue domestically and spur shared growth.

The 2025 budget and fiscal policy, which has already received Cabinet approval, aims to address the hopes and aspirations of Ghanaians, according to the Minister of Government Communications, Felix Kwakye Ofosu.

The upcoming budget is expected to provide a comprehensive assessment of Ghana's economic situation, with particular emphasis on what the current administration inherited from its predecessors. 

The Graphic Business expects that President John Dramani Mahama's "120-day social contract" will feature prominently in the budget. This social contract includes the promised abolition of several taxes introduced by the previous administration, such as the E-Levy, COVID-19 levy, the 10 per cent levy on bet winnings, and the emissions levy.

It is also expected to announce tax wavers at the port of entry to make the cost of doing business at the ports lower in line with the promises of the government.

While the specifics of economic growth projections and deficit targets remain undisclosed, the administration has signalled that the budget would align with President Mahama's vision as outlined in his recent State of the Nation Address. 

Economic forum 

The budget is also expected to entail a lot of input from the recent National Economic Dialogue which set the tone for the government’s reset agenda.

The national dialogue developed a comprehensive set of recommendations aimed at stabilising and transforming the country's economic landscape. 

The detailed blueprint focused on macroeconomic stability, sustainable growth, private sector development, infrastructural enhancement and structural adjustments.

The recommendations, which are expected to make it into the budget for a medium-term implementation, include implementing major tax reforms to expand the tax net, specifically targeted at property taxes and revised Value Added Tax (VAT) rates. 

The proposals call for addressing revenue leakages through compliance and adherence with the Public Financial Management Act, 2016 (Act 921) as well as reforming the fiscal responsibility legislation.