Ghana’s 2025 budget is set to play a pivotal role in supporting the country’s monetary policy objectives, offering a strategic path to restore macroeconomic stability.
In an exclusive interview with The High Street Journal, Financial Economist and Professor of Finance at the University of Ghana Business School (UGBS), Prof. Joshua Yindenaba Abor, noted that the budget’s contractionary fiscal stance—targeting a 20% revenue increase while cutting expenditure by 3.6%—aligns with the Bank of Ghana’s ongoing efforts to curb inflation, stabilize the local currency, and stimulate sustainable growth.
He described the synchronized fiscal-monetary approach as crucial for taming inflation, enhancing investor confidence, and fostering long-term economic resilience.
A Contractionary Fiscal Approach to Tame Inflation
According to Prof. Abor, the budget’s focus on domestic resource mobilization, tax compliance, and modernization of the tax administration system reflects a broader strategy to consolidate government finances. By curbing excessive spending and directing investments into targeted areas, the government is taking a fiscal consolidation stance that complements the Bank of Ghana’s ongoing contractionary monetary policy.
Monetary policy, which currently maintains high interest rates to reduce liquidity and control inflation, would have been weakened if the 2025 budget had taken an expansionary path. “If the budget had been expansionary, that would defeat or weaken the effectiveness of monetary policy,” Prof. Abor stated. Instead, the budget’s design ensures that fiscal and monetary strategies work in harmony to address inflationary pressures.
Expenditure Rationalization and Targeted Investments
The budget has also taken steps to eliminate wasteful expenditures while prioritizing social interventions and productive investments that will drive economic growth. Prof. Abor noted that although the government is still making investments, they are more focused and strategic, ensuring that funds are channeled into areas that yield economic benefits.
By significantly reducing unnecessary spending and optimizing revenue collection, the government is reinforcing its commitment to fiscal discipline. This move, according to Prof. Abor, strengthens the country’s ability to navigate economic challenges while laying a foundation for long-term growth.
Stronger Coordination Between Fiscal and Monetary Policies
Prof. Abor emphasized the need for fiscal and monetary policies to work in tandem to maintain macroeconomic stability. He noted that the 2025 budget demonstrates a concerted effort to align both policies, a critical step for managing inflation and ensuring sustainable economic recovery.
With inflation still at elevated levels, the combination of tight fiscal policies and monetary restraint is expected to gradually ease price pressures while creating a stable environment for investment and economic expansion.
He further stressed the importance of aligning the treasury bill rate with the policy rate to prevent investors from experiencing negative real returns, which could deter investment. “If the rates are not properly aligned, investors may suffer losses in real terms, discouraging market participation,” he explained.
Prof. Abor added that effective monetary policy requires close coordination between the central bank and the finance ministry. “That’s why alignment is crucial. If properly coordinated, government borrowing will be structured in a way that prevents interest rates from deviating excessively from the monetary policy rate,” he concluded.
