US-based Associate Professor of Finance, Professor Williams Peprah, has described a deeper fiscal challenge facing the country in his critique of the budget.

“When interest payments on existing debt are considered, the overall fiscal deficit widens considerably that is –2.2% of Gross Domestic Product on commitment basis and –4.0% on a cash basis. The difference between the primary surplus and the overall deficit is a balancing gap of roughly 3.7% of GDP underscores the heavy weight of interest obligations on public finances”, Professor Peprah mentioned in his presentation dubbed “Ghana’s 2026 Budget: Stability Gains, Fiscal Gaps, and the Rising Risk of Crowding-Out Effect”.

According to him, this widening gap means that even with improved revenue performance, the government must rely on additional borrowing to finance interest costs and priority programmes. He enumerated that the 2026 Budget outlines major investments, including the Big Push Infrastructure Programme, expanded agricultural support, and enhanced spending on education and health. “While these investments are crucial for inclusive growth, they also increase the demand for financing”.

The Impending Crowding-Out Effect

Professor Peprah who is with Andrews University wit also warned of the impending crowding-out effect if domestic borrowing surges in 2026.

“A serious warning must be sounded: Ghana risks a severe crowding-out effect if domestic borrowing surges in 2026. Because the balancing gap remains large and interest payments continue to absorb a substantial share of resources, the Government will need to access more domestic credit to close its financing shortfall”.

Domestic financing is expected to total GH¢71.9 billion, representing 4.4% of GDP. Of this amount, GH¢38.3 billion is projected to come from commercial banks, while GH¢33.4 billion will be raised from non-bank sources.

Professor Peprah said the funds will be mobilised mainly through the issuance of both long-term and short-term government securities.

He stressed that when government becomes a dominant borrower in the domestic market, banks allocate more of their lending portfolio to 'safe' government securities, interest rates rise as the demand for credit increases and the private businesses struggle to access affordable loans for expansion, investment, and production.

He concluded that the 2026 Budget carries a tone of optimism, grounded in improved fiscal discipline and ambitious development priorities. Yet the underlying fiscal gaps, rising interest obligations, and the increasing likelihood of crowding-out introduce caution.

“Whether Ghana can sustain growth in 2026 will depend on how effectively Government manages domestic borrowing, mobilizes revenue, and delivers investments without constraining private sector activity”, he added.