Fiscal policy implementation poses downside risk to inflation – BoG

The Bank of Ghana has cautioned that the government's fiscal policy implementation in 2026 could put a downward pressure on inflation, according to its recent Monetary Policy Report. The report cites the ongoing US-Iran conflict and its impact on crude oil prices as factors that may prompt the government to provide periodic relief measures, which could strain the budget. There are also concerns about the government contractors' ability to handle the increased spending, which could in turn affect inflation.

The central bank reassured the public that the government is committed to controlling expenditure, enhancing efficiency, and adhering to value-for-money standards. It also highlighted the government's aim to strengthen domestic revenue mobilization to ensure it can meet debt service obligations, thereby promoting long-term debt sustainability. However, the report pointed out that the completion of bilateral and commercial debt restructuring is expected to result in higher future debt service payments.

The Bank of Ghana called for improved fiscal management to curb debt accumulation and the corresponding servicing costs. It noted that the current high proportion of short-term debt increases rollover and refinancing risks, potentially limiting the fiscal space for productive investments and growth-enhancing expenditures. The central bank emphasized that higher domestic savings will be crucial in meeting external debt repayments, with potential implications for exchange rate stability.

In conclusion, sustained real GDP growth, lower real interest rates, and continuous exchange rate stability are essential prerequisites for enhancing Ghana's debt sustainability and maintaining its moderate risk of debt distress status.