Editorial: The conundrum of financing capital expenditure

The Centre for Policy Scrutiny (CPS) has raised serious concerns over the 2026 budget’s capital expenditure (CAPEX) plans, warning that the proposed 141 percent increase is highly ambitious and may be difficult to implement without jeopardising fiscal stability.

As far back as November 20, 2025, CPS held a media engagement and – while commending government for progress made in stabilising inflation and lowering interest rates – was emphatic that the proposed CAPEX growth in 2026 could strain public finances if revenue projections are not fully realised.

“Capital expenditure is critical for growth, but its success depends on careful planning and realistic assumptions,” it noted.

The Ghana Association of Banks (GAB), in its 2026 Industry Outlook, described as a “double-edged sword” government’s expectation that commercial banks in the country are to finance about 60 percent of government capital expenditure (CAPEX) from 2026, placing them at the development agenda’s centre.

CAPEX is projected to rise sharply from about GH¢32.7billion in 2025 to  GH¢57.5billion in 2026 before increasing steadily to more than GH¢83billion by 2029.

The heavy reliance on domestic banks to fund this expansion reflects limited access to foreign financing and a policy preference for local funding, but it also deepens the link between fiscal outcomes and bank balance sheets.

However, increased government borrowing to finance infrastructure and other capital projects is expected to support banks’ interest income and provide relatively predictable assets at a time when private sector credit growth remains cautious.

Higher capital spending tends to stimulate economic activity, improve firm-level cash flows and strengthen borrowers’ repayment capacity – which could gradually improve the quality of banks’ loan portfolios.

That said, the same financing pattern could constrain credit to businesses: as banks allocate more funds for government expenditure, private sector borrowers may face higher lending rates and tighter credit conditions.

The same process crowds out private sector credit, as banks reallocate funds away from businesses toward sovereign paper – pushing up lending rates and weakening private investment.

Total government expenditure is projected to increase from GH¢269.5billion in 2025 to GH¢302.5billion for 2026, before rising to nearly GH¢439billion by 2029. The constrained fiscal space means any slippage in revenue mobilisation could translate quickly into higher financing needs.

While CAPEX can be growth-enhancing, excessive reliance on domestic financing without careful structuring may deprive the private sector of adequate credit for growth and expansion.

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