2025 Budget: IEA urges increase in CAPEX for long-term growth
THE heavy focus on recurrent expenditure has hindered the country’s potential for growth in the last few years.
Consequently, economic think tank the Institute of Economic Affairs (IEA) is calling for a substantial increase in capital expenditure (CAPEX) in the upcoming 2025 budget to stimulate long-term economic growth.
In its latest bi-monthly Economic Outlook, the IEA emphasised that the current level of CAPEX, which has been squeezed to 3-4% of Ghana’s Gross Domestic Product (GDP) in recent years, is insufficient for driving sustainable development and job creation.
This call comes in the wake of projections from the International Monetary Fund (IMF) that forecast Ghana’s real GDP growth at just 4.0% for 2024, despite strong growth in the first three quarters of the year.
The projected growth, while higher than the 2.9% and 3.8% recorded in 2023 and 2022, respectively, reflects a significant slowdown in the last quarter of 2024.
The cause of this decline is unclear but may be attributed to reduced volumes or prices of some of the country’s key commodities.
Looking ahead, the IMF programme projects Ghana’s growth to rise to 4.4% in 2025 and 4.9% in 2026, before plateauing at 5.0% between 2027 and 2029.
However, the IEA argues that these growth rates are below the country’s potential.
The institute said Ghana has untapped resources and capacities that could enable the economy to grow at much higher rates, which are necessary to accelerate development and alleviate poverty.
It, therefore, stressed that higher growth could be achieved by leveraging these resources to boost investments in physical capital, human capital and technology.
To support this, the IEA said “CAPEX should be progressively increased to at least 10% of GDP over the medium term towards accelerating Ghana’s growth, fostering job creation and improving living standards.”
This would accelerate Ghana’s economic expansion, foster job creation and improve living standards across the board.
Cocoa sector revival
In addition to the call for increased investment in CAPEX, the IEA urged the government to implement a revival strategy for the cocoa sector, another critical area for Ghana’s economic prosperity.
The institute stressed the need for reforms in how cocoa was financed, recommending a new approach to phasing out the failed syndication scheme and controlling operational costs at Cocobod.
“The budget should propose a revival strategy for the cocoa sector, including entrenching a living producer price to spur production, a new approach to financing cocoa purchases while phasing out the failed syndication scheme, dealing with the threat of “galamsey” to the sector and reining in operational costs of Cocobod to restore the organisation to financial viability,” it said.
Value addition
The institute also highlighted the importance of addressing the limited fiscal space available for economic development, noting that increased local value addition and Ghanaian ownership in the natural resource sector could further bolster the nation’s financial footing.
Therefore, it said the budget should specify a comprehensive plan for addressing the huge legacy debt in the energy sector while returning the sector to financial sustainability, adding that “there should also be a plan to ensure stable and less-costly power to boost the competitiveness of the economy.”
“The budget should recognise the lack of fiscal space to support economic development due to limited government revenue. While taking steps to increase the tax intake, it will be important also for the government to recognise the potential of the natural resource sector to provide resources for development.
Tapping this potential will require changes to the natural resource fiscal regimes towards increasing Ghanaian ownership and benefits. Local value-addition to natural resource products should also be given priority attention so as to increase receipts from the resources,” it added.