Financial economist at the University of Ghana Business School (UGBS), Prof. Lord Mensah says Ghana can overcome its fiscal challenges through strong fiscal discipline and export-driven policies. According to the economist, the anticipated decline in global crude oil prices, coupled with other revenue pressures, require a strategic approach to economic management to stabilize the country’s finances.
“With serious government planning to reorient the economy, reduce reliance on taxes, and enhance exports, the gap can be closed,” Prof. Mensah stated. He added that while the projected drop in crude oil prices—from $81.29 per barrel in 2024 to $72.84 per barrel in 2025—poses risks to Ghana’s petroleum revenue, a disciplined fiscal approach could mitigate the impact.
Declining Oil Prices and Revenue Shortfalls
Ghana’s fiscal challenges unfold within a difficult global economic environment. Economic growth is forecast to stagnate at 3.2% in 2025, with key trade partners like China experiencing slowdowns. Meanwhile, geopolitical uncertainties, including tensions in the Middle East continue to destabilize energy and commodity markets.
While OPEC’s production restraint may stabilize oil prices, weaker global demand suggests that Ghana cannot rely on oil revenue windfalls. Domestically, this situation could lead to further currency depreciation, rising inflation, and higher borrowing costs for businesses and households.
Ghana’s declining crude oil production coupled with the anticipated drop in oil prices will reduce petroleum receipts, which are critical to government revenue. These challenges could be compounded by the planned removal of certain taxes. While the tax relief measures aim to boost economic activity and ease the burden on citizens, they could significantly reduce domestic revenue mobilization, which will undoubtedly affect the execution of government’s 2025 budget which is set to be read on March 11, 2025.
Prof. Mensah maintains that Ghana’s budget, traditionally pegged to global oil price projections, must account for these risks. “The impact is not going to be as significant as anticipated if the government adopts export-driven policies and strengthens revenue generation strategies,” the economist stated.
The withdrawal of funding from USAID will leave the government with fewer resources to fund critical obligations however Prof. Mensah believes that Ghana’s reliance on donor funds and taxes has reached its limit. “We cannot continue to depend on external aid or a tax-heavy economy, especially when taxes are choking production,” he stated urging the government to prioritize exports as a key revenue source.
Further on taxes, economist and Senior Lecturer at the Department of Economics, University of Ghana, Legon, Dr Priscilla Twumasi Baffour has recently cautioned against sweeping tax cuts, saying that rolling back taxes for political expediency could have severe economic repercussions on the Ghanaian economy.
In her view, “government should not be hasty in taking out all the taxes that it promised to remove if indeed it’s very difficult to make up for it.”
She explained that while reducing what has been termed ‘nuisance taxes‘may be aimed at promoting production over taxation, economic growth does not happen overnight.
The issues of tax cuts, efforts at closing the funding gap as well other economic indicators will come up for deliberation at the upcoming national economic dialogue where experts are set to brainstorm and come out with policies that will inform government’s management of the Ghanaian economy.
