Tough choices ahead on fiscal path – IMF

The country’s fiscal and monetary policy path is entering a more constrained phase as global risks intensify, with the International Monetary Fund’s Executive Board warning that government will need to navigate tighter trade-offs to preserve stability amid rising external shocks.

The Fund’s latest assessment, delivered alongside the April 2026 World Economic Outlook, reflects a shift in the global environment that is less supportive of emerging and frontier economies.

The war in the Middle East is emerging as the dominant risk factor, feeding through higher commodity prices, rising inflation expectations and tightening financial conditions, channels that directly affect Ghana’s macroeconomic trajectory.

Executive Directors, in a statement, concurred that the war in the Middle East presents a significant headwind to the global economy, particularly for energy-importing and lower-income countries. The implications for Ghana are immediate, given its exposure to global fuel price movements, exchange rate pressures and external financing conditions.

The Fund now projects global growth at 3.1 percent in 2026, down from earlier expectations, while global inflation is expected to rise to 4.4 percent. These revisions highlight the impact of geopolitical tensions, which have offset earlier gains from improved financial conditions and technology-driven investment.

More adverse scenarios outlined by the IMF suggest global growth could slow to as low as 2 percent, with inflation exceeding 6 percent if the conflict escalates further or disrupts energy infrastructure.

The impact on emerging market and developing economies would be significantly larger, reflecting structural vulnerabilities and higher exposure to commodity price shocks.

For Ghana, these global dynamics are already feeding into domestic conditions. A sharp increase in international oil prices has translated into higher fuel costs, with petrol rising by about 15 percent to roughly GH¢13.30 per litre and diesel by nearly 19 percent to GH¢17.10 per litre in early April.

The surge followed a jump in Brent crude prices from the low US$70 per barrel range in late February to above US$110 by end-March.

The government has responded with short-term measures aimed at containing pass-through effects. Following an emergency cabinet meeting chaired by President John Dramani Mahama, held last week Thursday, authorities directed a temporary suspension of selected fuel taxes and margins for four weeks, alongside administrative measures to reduce transport costs, including the accelerated deployment of Metro Mass Transit buses.

These interventions reflect the type of policy response the IMF cautions must remain limited. Directors noted that support to cushion households should be “temporary, targeted and preferably delivered through existing social safety nets”.

The tension between cushioning consumers and preserving fiscal discipline underscores the central policy dilemma. Ghana enters this phase with limited fiscal space, despite recent gains in macroeconomic stabilisation. General government debt remains elevated at about 56 percent of GDP, while foreign exchange reserves stand at 5.8 months of import cover, constraining the scope for sustained intervention.

The IMF’s guidance places fiscal policy at the centre of the adjustment challenge. The Fund stressed the urgency of rebuilding fiscal buffers and implementing credible medium-term frameworks anchored on revenue mobilisation and improved spending efficiency.

For countries facing tighter financing conditions, it noted that “credible consolidation and predictable rules remain essential for regaining market confidence.”

This focus on credibility reflects a broader shift in the global financing environment. Higher borrowing costs and declining aid flows are increasing reliance on domestic revenue sources, placing additional pressure on tax systems. For Ghana, this raises questions about the sustainability of revenue mobilisation efforts in a context of slowing growth and rising external risks.

At the same time, the IMF underscored the importance of safeguarding critical social and development spending. Directors highlighted that low-income countries must balance fiscal consolidation with the need to protect vulnerable populations and maintain long-term growth prospects.

Monetary policy is similarly constrained. The IMF reiterated that preserving price stability remains the primary policy anchor, with central banks expected to act decisively to prevent inflation expectations from becoming unanchored.

Directors stated that monetary authorities “should be ready to act decisively in line with their mandates to prevent prolonged supply shocks from destabilising medium-to-long-term inflation expectations,” while retaining flexibility to accommodate temporary shocks where appropriate.

For Ghana, this guidance comes at a time when inflation has slowed significantly, reaching 3.2 percent in March 2026, creating room for policymakers to maintain a cautious stance. The Bank of Ghana has reduced its policy rate over the past year, supporting credit conditions and economic activity.

However, the World Bank warns that this disinflation trend could prove fragile. Rising fuel and food prices, alongside global uncertainty and potential currency pressures, could reverse recent gains and force a recalibration of monetary policy. The risk is that tightening may be required before the recovery is fully entrenched.

The IMF also flagged exchange rate dynamics as a key transmission channel for external shocks. Where risks of “excessive or disorderly exchange rate movements” emerge, temporary foreign exchange interventions and capital flow management measures may be warranted, provided they are aligned with broader macroeconomic policies.

For Ghana, where exchange rate stability has been central to restoring confidence, this introduces a delicate balance. Intervention can help smooth volatility, but excessive reliance risks eroding reserves and undermining policy credibility.

Finance minister Dr. Cassiel Ato Forson, speaking at the IMF/World Bank Spring Meetings, maintained that the economy remains resilient despite recent global shocks. He attributed this resilience to prudent policy decisions, ongoing reforms and buffers built over the past year.

He noted that increased gas production has helped cushion the impact of rising global energy prices, reducing the extent of external shocks on the domestic economy. However, he acknowledged that inefficiencies in energy distribution remain a key risk, with plans underway to introduce private sector participation to improve operational performance.

World Bank Managing Director for Operations Anna Bjerde commended Ghana’s economic management while amplifying the need to address structural weaknesses in the energy sector to sustain progress.

These structural challenges align with the IMF’s broader emphasis on reform as a driver of medium-term resilience. Directors highlighted the role of digitalisation, artificial intelligence and labour market reforms in boosting productivity and growth, alongside measures to improve the business environment and strengthen supply chains.

Beyond domestic policy, the IMF underscored the importance of international cooperation in managing global risks. Directors called for efforts to reduce trade policy uncertainty and reinforce predictable rules-based systems, noting that rising fragmentation could undermine growth and stability.

The Fund reaffirmed its role in supporting member countries through policy advice, lending and capacity development, particularly for those most affected by external shocks. It also highlighted ongoing efforts to strengthen the G20 Common Framework for Debt Treatments, reflecting persistent challenges in addressing sovereign debt vulnerabilities.

The broader message from the IMF is one of constrained flexibility. Policymakers are being urged to operate within tighter margins, balancing competing objectives in an environment characterised by elevated uncertainty and downside risks.

The World Economic Outlook reinforces this assessment, noting that geopolitical tensions remain the dominant risk to the global economy. Further escalation could trigger a larger energy crisis, disrupt trade and financial markets, and amplify existing vulnerabilities across emerging markets.

At the same time, the report identifies potential upside risks, including stronger-than-expected gains from artificial intelligence investment and renewed momentum in structural reforms. However, these are contingent on stable policy frameworks and sustained global cooperation.

For policymakers, the challenge is to design strategies that are robust across multiple scenarios. The IMF emphasized the importance of preparedness, with scenario analysis providing a framework to understand transmission channels, assess policy trade-offs and enhance resilience.

“Given the highly uncertain outlook,” Directors said, scenario analysis can support decision-making across a range of possible outcomes.

In practical terms, this requires a shift toward more adaptive policy frameworks, capable of responding to evolving conditions without undermining credibility. The emphasis on flexibility is particularly relevant for economies like Ghana, where external shocks can rapidly alter macroeconomic conditions.

The country’s adjustment process is now unfolding in a more volatile global environment, where external developments may offset domestic gains. While recent improvements in inflation, fiscal balances and investor sentiment provide a foundation, they remain vulnerable to renewed shocks.

The IMF’s assessment suggests that the next phase of policy management will be defined by resilience rather than stabilisation. Maintaining market confidence will depend on the consistency and credibility of policy actions, as well as the ability to manage trade-offs without destabilising macroeconomic fundamentals.

The outlook remains conditional. The Fund’s reference forecast assumes that the Middle East conflict will be contained and disruptions will ease by mid-2026. However, the probability of more adverse scenarios increases with the duration and intensity of the conflict.

For Ghana, this implies a narrowing margin for policy error. The combination of external shocks, tighter financing conditions and structural constraints is reinforcing the need for disciplined, coordinated and forward-looking policy responses.

The IMF’s message is clear: the global environment is becoming less forgiving and countries with limited fiscal space must prioritise credibility, rebuild buffers and advance structural reforms to sustain stability and support long-term growth.