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2025 REVIEW

 

The macroeconomic and fiscal context

Ghana's tax policy developments in 2025 cannot be understood in isolation. They are the direct consequence of a macroeconomic crisis that fundamentally reshaped the country's fiscal architecture. In late 2021, following years of expansionary fiscal policy and rising debt service costs, Ghana effectively lost access to international capital markets. Ghana suffered a significant downgrade in sovereign credit ratings leading to a spike in sovereign bond yields to levels that made further external borrowing prohibitively expensive. What followed was a period of acute economic stress. The Ghana Cedi (GHS) depreciated by over 50% against the US Dollar (USD) in 2022 alone, international reserves fell to critically low levels, inflation surged past 50%, and domestic financing conditions tightened sharply as banks retreated from government paper. By mid-2022, it had become clear that Ghana's public debt trajectory was unsustainable.

 

In May 2023, after months of negotiation, the government secured a USD 3 billion, 36-month Extended Credit Facility arrangement with the IMF (the IMF Programme). The IMF Programme was accompanied by a comprehensive Domestic Debt Exchange Programme (DDEP), under which holders of domestic government bonds accepted significant haircuts and maturity extensions. External creditors, including bilateral lenders and Eurobond holders, subsequently entered into parallel restructuring processes. The scale of the restructuring—one of the largest sovereign debt restructurings in Africa's recent history—underscored the severity of the fiscal imbalance that had accumulated.

 

The implications for fiscal policy were immediate and far-reaching. With external borrowing effectively unavailable, concessional financing from multilateral institutions insufficient to close the gap, and domestic debt markets still recovering from the DDEP, the government’s ability to finance expenditure became almost entirely dependent on domestic revenue mobilisation. Under the IMF Programme, Ghana committed to restoring fiscal sustainability through a combination of expenditure restraint and revenue enhancement, including the achievement of a primary budget surplus of 1.5% of GDP. Tax policy moved from the periphery to the centre of economic management. Strengthening tax collection was no longer merely desirable but existential.

 

The difficulty, however, was that Ghana entered this period of fiscal consolidation with a revenue base ill-equipped for the task. In 2022, the country’s tax-to-GDP ratio stood at approximately 13.8%—well below the 16-18% range typical of comparable lower-middle-income economies and significantly below the 20% threshold generally considered necessary to fund basic public services without chronic borrowing. The reasons for this shortfall are structural and long-standing. Personal income tax collections have consistently lagged behind peer jurisdictions with similar statutory rate structures, reflecting both administrative limitations and the narrow formal employment base. Value added tax (VAT) performance has been constrained by extensive exemptions and the sheer scale of economic activity that occurs outside the formal sector. With the informal sector  estimated at over 60% of the labour force, a substantial portion of Ghana's economy remains effectively invisible to the tax system.

 

Against this backdrop, the revenue performance achieved since 2022 reflects a genuine and sustained consolidation effort. Nominal tax collections have grown significantly year-on-year, with total tax revenue reaching approximately GHS 153.5 billion in 2025, up from GHS 113.4 billion in 2024—a growth of around 35% in nominal terms. This growth has translated into a gradual but meaningful improvement in the tax-to-GDP ratio, representing one of the few areas of unambiguous progress in Ghana's post-crisis adjustment.

 

Two important qualifications, however, temper this progress. First, revenue performance has periodically fallen short of programme targets, exposing the fragility of the recovery. Total revenue and grants in the first nine months of 2025 underperformed projections, with the IMF attributing part of the shortfall to the appreciation of the GHS (which, while positive for inflation and external stability, reduced the local currency value of foreign currency-linked revenues) and to persistent operational challenges at the country’s ports. Second, a significant portion of the increase in nominal collections reflects the inflationary expansion of the tax base rather than a genuine structural broadening of the taxpayer population or durable improvements in compliance. In other words, part of what appears as revenue growth is simply the mechanical effect of higher prices flowing through to taxable transactions.

 

As a result, the underlying revenue challenge remains unresolved. Ghana’s tax-to-GDP ratio, although improving, still lags behind the sub-Saharan African average of approximately 16% and remains well below the level required to sustain public expenditure without continued reliance on borrowing or donor support. Expanding the tax base, both by bringing more economic activity into the formal system and by improving compliance among existing taxpayers, therefore, remains the central policy objective. The government has indicated that revenue collection will need to increase by approximately 0.6 percentage points of GDP annually over the medium term in order to meet fiscal consolidation targets and restore sustainable public finances.

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Against this challenging fiscal backdrop, macroeconomic conditions improved materially during 2025, offering a rare window of stabilisation. Consumer price inflation, which had peaked at over 54% in late 2022, declined steadily through 2024 and fell from 23.8% in January 2025 to just 5.4% by December, comfortably below the Bank of Ghana’s 8% upper target band for the first time in years. The Bank of Ghana responded by aggressively easing monetary policy, cutting the policy rate by a cumulative 1,000 basis points during the year to 18%, its lowest level since the crisis began. The GHS, defying expectations, recorded its first annual appreciation against the USD since 1994, a milestone that reflected improved sentiment, stronger reserves, and the completion of key debt restructuring milestones. International reserves were rebuilt to approximately 3.4 months of import cover, providing a modest but meaningful buffer against external shocks.

 

Ghana also met all quantitative performance criteria under the 5th review of the IMF Programme, concluded in December 2025. This was a significant achievement, signalling to markets and development partners that the adjustment programme remained on track. However, the successful completion of IMF reviews does not, in itself, resolve the structural vulnerabilities in Ghana's fiscal position. It merely confirms that the immediate crisis has been managed and not that the underlying challenges have been overcome.

 

It is against this background—fiscal consolidation under an IMF programme, a narrow and structurally constrained tax base, a legacy of debt restructuring that continues to shape market confidence, and improving but still fragile macroeconomic conditions—that the tax policy and legislative developments discussed in this outlook must be assessed. The reforms undertaken in 2025, and those anticipated in 2026, represent the government's attempt to build a revenue architecture capable of sustaining Ghana's development ambitions without repeating the fiscal missteps of the recent past.

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