Development Economist and Head of Research at the Danquah Institute, Dr. Frank Bannor, has challenged the common narrative that reducing government expenditure is the solution to Ghana’s longstanding debt problem, calling it a flawed argument that fails to consider the realities of the country’s economic structure.
Speaking in an interview on France24 news, Dr. Bannor provided an in-depth analysis of Ghana’s budget, emphasizing that wages, salaries (public sector), and interest payments form the bulk of government spending.
“Let me touch on our economic situation. One of the longstanding challenges for Ghana has been the issue of debt. Time and again, we hear calls for the government to reduce expenditure to tackle the debt. As an economist, I find that argument flawed.”
He pointed out that in the November 2023 budget presented to Parliament and the mid-year budget review, the largest government expenditure was on wages and salaries, primarily for public sector workers. With the government being the largest employer in Ghana, this expenditure has ballooned over the years.
“When people suggest cutting government spending, are they implying we should lay off workers or reduce their salaries? That can’t be the solution,” Dr. Bannor argued. He noted that in 2024 alone, public sector wages increased by about 20%, bringing the total wage bill to almost over 66 billion cedis. He mentioned that the government recently recruited an additional 15,000 health professionals, further adding to the wage burden.
Expenditure
The Economist further highlighted that the second-largest expenditure is the payment of interest on the country’s debt. “Interest payments are untouchable,” he stated, explaining that once the government commits to borrowing, it must honor its debt obligations. “We cannot escape this responsibility without damaging our credibility.”
Dr. Bannor also drew attention to the structural issue in Ghana’s economy, where the private sector plays a much smaller role in employment compared to other countries. “Unlike other economies where the private sector drives job creation, the government in Ghana remains the largest employer. This naturally increases public expenditure,” he explained.
He stated that while government spending had risen steadily, revenue generation, especially through taxation, had failed to keep pace. “Our tax revenue as a percentage of GDP is only about 15%, far below the Sub-Saharan African average of 20-21%. This gap between rising expenditure and stagnant revenue is what creates the fiscal deficit,” he said.
Dr. Bannor explained that to finance this deficit, the government is left with two primary options: borrowing domestically or externally. He warned that borrowing domestically poses its own challenges, as it limits the amount of capital available for private investment, leading to the crowding out of private sector growth. He stressed that, this, in turn, stifles economic development.
Borrowing
Dr. Bannor said that external borrowing—whether through commercial, concessionary, or bilateral loans—has become a necessary evil for many governments dealing with persistent fiscal challenges. He cited Ghana’s history of fiscal imbalances, noting that the country recorded its first fiscal deficit in 1959, just two years after gaining independence. Since then, Ghana has struggled to manage its debt and restore fiscal balance.
“The reason why many governments resort to borrowing externally is because of these persistent fiscal challenges,” he said. “Ghana’s history is marked by a pattern of borrowing and fiscal imbalance, and this has been a central issue since independence.”
Dr. Bannor emphasised that while Ghana’s economic challenges are significant, the solution lies in a shift in how the country approaches development, revenue generation, and fiscal responsibility. “We need to rethink our strategies. Addressing these challenges will require more than just cutting expenditure—it demands a comprehensive and forward-thinking approach to economic management,” he added.
