EM Advisory’s Review of Ghana’s 2026 Annual Budget

Let us begin with what cannot be disputed: the Mahama administration has delivered the fiscal consolidation it promised. The primary surplus target of 1.5% of GDP for 2026 represents genuine fiscal discipline, especially considering the political pressures of a new administration with high public expectations. The overall deficit target of 2.2% of GDP (on a commitment basis) in 2026 aligns with the IMF’s programme targets and signals a continued commitment to macroeconomic stability.

This is no small achievement. When we presented our mid-year review, we questioned whether the impressive early numbers could be sustained once the “grace period” of a new government elapsed. The fact that discipline has been maintained through the traditionally challenging second half of the fiscal year suggests this administration understands the stakes.

The macroeconomic environment has also remained broadly supportive:

• Inflation continues its downward trajectory toward the 8% target
• The cedi has maintained relative stability, representing a marked contrast to the volatility of recent years
• Growth projections of circa 4.8% for 2026 also appear achievable given current momentum

Social intervention programmes have been reinforced. The LEAP programme remains properly adjusted to account for inflation, with reach to be extended to 49,420 (i.e. from 350,580 to 400,000) new households. With the NHIF uncapped and the GSFP budget increased, the government remains committed to the needs of the marginalised and vulnerable.

For a country that has experienced significant economic turbulence, this stability provides a foundation for recovery, and the Government deserves its plaudits.

The Arrears Audit: A More Favourable Starting Point Than Claimed

It is worth remembering, however, that one of the most significant claims in the 2025 mid-year budget was that the government inherited GH₵67 billion in arrears from December 2024, a figure that helped frame the administration’s narrative of inherited fiscal distress.

We noted in our mid-year review that this figure required scrutiny, particularly after the IMF’s March 2025 report cautioned that “a significant share of such payables may not be supported by valid documentation.”

The 2026 Budget now provides further clarity, and the results are instructive. Of the GH₵68.8 billion in payables submitted for audit:

• GH₵47.8 billion was validated as legitimate claims (69% of the total);
• GH₵10.4 billion was rejected outright due to unsupported documentation, duplicate IPCs, inflated invoices, falsified store receipts, and instances where no work was done;
• GH₵1 billion comprised Bank Transfer Advices already approved for payment: funds that would have been disbursed before audit intervened;
• GH₵2 billion was reclassified from claims to commitments; GH₵8.6 billion remains under review, pending further validation.

This matters considerably. In effect, the inherited fiscal position was GH₵21 billion better than initially claimed, a 31% overstatement. While GH₵47.8 billion in validated arrears remains substantial and represents a genuine burden, the distinction between claimed and actual obligations has several implications:

First, it suggests the fiscal hole inherited by the current Government was not as deep as portrayed. This doesn’t diminish the government’s consolidation achievement, but it does reframe it. The starting point was more favourable than suggested.

Second, the findings reveal troubling weaknesses in public financial management systems across administrations. Serious questions need to be asked across the Government about how GH₵10.4 billion in fraudulent or duplicate claims could have entered the system; even more damning was that GH₵1 billion in duplicate payments, which were ready for disbursement. Altogether, these lapses point to the fundamental control failures that transcend political transitions.

Third, it also raises questions about the use of the initial GH₵67 billion figure in framing fiscal narratives. Was this an honest assessment based on available information, or an attempt by the finance minister to lower the performance evaluation standard for the new administration? The distinction matters for accountability.

Altogether, the government deserves credit for conducting the audit and publishing results that complicate its own narrative. This transparency is commendable. But it also means we must recalibrate our assessment of both inherited challenges and current achievements. Ghana’s fiscal consolidation is real, but it began from a stronger position than initially reported.

The Compression Problem: When Austerity Becomes Self-Defeating

This current government has reiterated its commitment to maintaining fiscal discipline, strengthening revenue mobilisation, and ensuring debt sustainability. To restore investor confidence and achieve stability, government spending on goods and services was cut down to 0.3% of GDP, an all-time low since 2018. The government has been fiscally disciplined, which is laudable; nonetheless, fiscal discipline is required in the right proportion.

The government needs to be fiscally disciplined enough to cut out reckless spending, but also fiscally forthcoming (in terms of goods and services) to ensure the smooth functioning of the government machinery. The best kind of austerity is the one that strikes the right balance between revenue mobilisation and expenditure cuts (eliminating wasteful spending).

However, the method of achieving fiscal consolidation in this budget raises immediate red flags. Goods and services allocation at just 0.8% of GDP for the entirety of 2026 represents operational starvation. Unfortunately, such allocations represent institutional underfunding rather than an efficiency issue. Historical experience across Sub-Saharan Africa shows that such severe compression typically leads to service delivery failures and the accumulation of new arrears as agencies struggle to function.

The 2026 budget essentially portrays a country attempting major infrastructure expansion while starving the operational systems needed to maintain and utilise that infrastructure. That contradiction is sure to emerge quickly in 2026.

Revenue Realities: The Optimism Gap

Perhaps the most important question about the budget is how its promises will be fulfilled. The revenue projections present an area of concern. The budget assumes total revenue of 16.8% of GDP, up from historical averages of around 15%, a 1.8 percentage point increase that would be remarkable if achievable. Yet the specifics of how this windfall will materialise remain frustratingly vague.

Yes, the government has announced VAT reforms and other tax measures, which we applaud in principle. The simplification of the VAT system and elimination of cascading effects from various levies represent sound policy. But as we noted in our mid-year review, Ghana’s VAT compliance gap stands at approximately 60%. Without addressing the fundamental issues of tax administration and the large informal sector, even the best-designed tax policies may surely underperform.

Additionally, the heavy reliance on “administrative improvements” by the Ghana Revenue Authority (GRA) is particularly concerning. While the GRA has made genuine efforts to modernise, expecting administrative measures alone to deliver a stepchange in revenue collection is optimistic at best. Historical evidence suggests that sustainable revenue growth requires a combination of policy reforms, administrative improvements, and structural economic adjustments.

Ghana has undergone several tax reforms, which have not lived up to the hype.

The underperformance of these reforms stems from the fact that the fundamental issues have been overlooked: people hate paying taxes, tax administration is inefficient, and there are several incentives and opportunities to circumvent systems put in place. Introducing new technologies in the tax administration process, which this government promises to do, does not necessarily address these issues.

Tax administration needs to be approached from a business model perspective where the needs of the customer (in this case, the taxpayer) are paramount, bearing in mind that people generally hate taxes. Thus, tax registration and payment must be made convenient, which calls for innovation. Ghana must adopt a frugal innovation model to tax administration, steering clear of sophistication towards simplicity, affordability, and efficiency.

On the issue of simplicity, the tax process ought to be user-centric. Here are some interesting facts to consider: About 80% of the labour force is employed in the informal sector. This group is also overwhelmingly dominated by low-skilled and digital novice workers. Considering this, are technologically advanced mediums or techniques what the country really needs to collect taxes?

Inefficiency is at the core of the problems of tax administration. Excessive delays in service provision incentivise desperate, well-resourced individuals to pay their way through, effectively creating a “backdoor market.” If tax administrators are disarmed of the leverage they hold over taxpayers, the leaks in the tax system will be curtailed to the barest minimum.

Furthermore, the government appears to be riding on the back of favourable commodity prices, particularly gold and cocoa. While the Ghana Gold Board has performed well (transparency concerns notwithstanding), commodity-dependent revenues are inherently volatile, and questions must be asked about what happens when gold prices normalise, or cocoa production faces climate shocks.

This year, all revenue targets were missed except for non-oil non-tax revenue. In a year where mineral and oil prices have been stable, if not favourable, this is concerning, perhaps not yet apparent in this fiscally restrained period. Until Ghana addresses its narrow tax base and revenue inefficiencies head-on, the optimism built into the 2026 projections remains fragile.