Ghana's government has reduced its primary fiscal surplus target from 1.5% to 0.5% of GDP to fund its $10Bn New Economy programme. The programme, which will run from 2027 to 2030, aims to transform the country's industrialisation strategy.
The new target will give the government more room to spend on development priorities.
The primary balance measures the difference between government revenue and non-interest expenditure. Maintaining a surplus helps the government demonstrate its ability to finance spending without relying excessively on additional borrowing. Reducing the target would reduce the fiscal buffer available to support debt sustainability and protect the economy against unexpected shocks.
Policy analyst Sitsofe Mensah believes the decision to lower the primary surplus target is a serious gamble with Ghana's fiscal credibility. He argues that loosening the fiscal target, even in pursuit of productive investment, carries significant risks if the additional fiscal space is not managed differently from previous government-led industrialisation initiatives.
The New Economy programme has seven priority pillars, including commercial agriculture, oil palm, pharmaceuticals, and textiles. The programme aims to create competitive businesses, expand production, attract private capital, and generate sustainable jobs.
However, Mensah notes that the success of the programme will depend on whether the investment creates lasting economic transformation rather than another cycle of expensive industrial promises.
Ghana's manufacturing credit trend is a concern, with the sector's share of commercial bank credit declining from 25% in 1999 to 10.5% over the past 25 years. This implies that decades of industrialisation promises have not translated into stronger financing for productive businesses.
President John Dramani Mahama's administration will need to ensure that the additional spending generates sufficient economic returns to justify relaxing the fiscal rule. The government must avoid repeating the mistakes of previous industrialisation programmes, which failed to create sustainable industries due to poor management and distribution of resources.