Although the government touted the 2026 Mid-Year Budget Review as one anchored on fiscal restraint and stability, a new critique by the Institute for Fiscal Studies (IFS) suggests that this discipline may be coming at a heavy price for the Ghanaian economy.
The IFS, in its analysis of the 2026 Mid-Year Budget, warns of a massive GH¢35.60 billion shortfall in spending, representing about a 20.6% drop from the budgeted target.
The institute believes that this shortfall is simply a “chokehold” on the nation’s growth momentum.
The Missing Billions: A Case of Poor Execution
The IFS report reveals a startling reality. It says that between January and June 2026, the government failed to spend more than a fifth of what it had promised. Sadly, it indicates that the most painful cuts were felt in areas vital for daily economic survival.
Infrastructure: Capital expenditure, which many experts believe is the lifeblood of physical development, crashed by 39.3%, falling GH¢14.38 billion short of its target.
Contractor Hardship: Arrears clearance, which the institute describes as the oil for the economy, saw a staggering 61.8% shortfall. This simply means suppliers and contractors who propel economic activities were squeezed.
According to the IFS, when the government stops paying its bills, it triggers a ‘domino effect’ that starves businesses of liquidity and halts the projects that drive long-term development.
The Squeeze in Numbers
The impact of this spending restriction is already visible in the data. The IFS points to a clear downward trend in non-oil real GDP growth. From a peak of 8.5% in the second quarter of 2025, growth has steadily cooled, dropping to 6.3% in the first quarter of 2026.
The Institute argues that because government expenditure is a direct component of GDP, these “deliberate” restrictions are actively pulling the brakes on the economy.
A Balanced Reality: The Growth Paradox
Despite the perceived suffocation described by the IFS, it is worthy of note that the Ghanaian economy remains resilient. In a notable paradox, overall real GDP growth for the first quarter of 2026 hit 6.4%, significantly outperforming the government’s initial full-year projection of 4.8%
Furthermore, the private sector is breathing easier in one specific area, which is the cost of credit. This is due to a stable macroeconomic environment. The 91-day Treasury bill rate, which sat at a painful 28.0% in late 2024, dropped to just 5.7% by June 2026, while average lending rates fell to 15.6%. This provides a vital “silver lining” for businesses, even as they struggle with the lack of government spending.
It can therefore be deduced that the IFS believes the economy would have performed better than it did if the government stuck to its spending plans.
The Sinking Fund Mystery
Another interesting concern in the IFS analysis is that this underspending was a deliberate choice rather than a necessity. While the government claimed it lacked the domestic financing to meet its budget, it simultaneously managed to accumulate GH¢15.6 billion in a Sinking Fund by July 2026, an accumulation that was never mentioned in the original budget.
The IFS questions the logic of “starving the budget” and leaving contractors unpaid while quietly building up massive cash reserves elsewhere.
The institute believes that unless the government aligns its financing with its spending plans, the decent growth recorded in the first half of the year could be further undermined by a self-imposed fiscal squeeze.
