Commercial banks are set to play a dominant role in financing Ghana’s development agenda from 2026, with the sector expected to fund about 60 percent of government capital expenditure (CAPEX) – a situation the Ghana Association of Banks (GAB) has described as a “double-edged sword” for the economy.

According to GAB’s 2026 Industry Outlook, government capital spending is projected to surge from approximately GH¢32.7 billion in 2025 to GH¢57.5 billion in 2026, before rising steadily to over GH¢83 billion by 2029, based on projections in the 2026 Budget Statement.

The growing reliance on domestic banks reflects constrained access to external financing and a policy shift toward local funding. However, it also tightens the link between fiscal performance and banks’ balance sheets.

“About 60 percent of government financing will be supported by commercial banks, indicating that a significant part of domestic financing for CAPEX is likely to create a double-edged sword for the economy,” the Outlook notes.

On the upside, increased government borrowing to fund infrastructure and other capital projects is expected to bolster banks’ interest income and provide relatively stable assets, especially as private-sector credit growth remains subdued. Higher capital spending is also seen as supportive of economic activity, improved corporate cash flows and stronger debt-servicing capacity, which could gradually enhance banks’ asset quality.

However, the report cautions that the same trend could restrict credit availability for businesses. As banks channel more funds into government securities, private borrowers may face higher lending rates and tighter access to credit.

“This process crowds out private-sector credit as banks reallocate funds toward sovereign paper, pushing up lending rates and weakening private investment,” GAB warned.

Total government expenditure is projected to rise from GH¢269.5 billion in 2025 to GH¢302.5 billion in 2026, before increasing to nearly GH¢439 billion by 2029. While overall spending is expanding, the report highlights a notable shift toward capital expenditure relative to recurrent spending.

This occurs against a backdrop of persistently high interest payments. Debt-servicing costs are expected to stabilise between GH¢57 billion and GH¢59 billion in 2026 and 2027, rise to about GH¢70 billion by 2028, and exceed GH¢80 billion by 2029. According to GAB, these obligations will continue to consume a significant share of government resources, limiting fiscal flexibility.

For banks, elevated interest payments carry implications for sovereign risk assessment. The Outlook notes that tight fiscal space means any shortfall in revenue mobilisation could quickly translate into higher financing needs. As a result, public debt sustainability remains central to banks’ capital adequacy assessments, risk-weighting decisions and stress-testing frameworks.

The financing structure of CAPEX further underscores the banking sector’s role. Domestic financing is projected to rise from about GH¢45.5 billion in 2026 to nearly GH¢69.6 billion by 2029, while foreign financing is expected to increase only modestly from around GH¢12 billion to about GH¢14 billion over the same period. Although this reduces exposure to foreign-exchange risk and external refinancing shocks, it concentrates fiscal risk within the domestic financial system.

GAB cautioned that while capital spending can be growth-enhancing, excessive reliance on domestic financing without careful structuring could deprive the private sector of much-needed credit.

The Outlook also points to early signs of easing pressure from deficit financing. Total government financing needs are projected to decline from about GH¢64 billion in 2026 to GH¢44.6 billion in 2027, before fluctuating moderately through 2029. Commercial banks are expected to provide GH¢38.3 billion in 2026 and GH¢46.6 billion in 2027, with their contribution declining thereafter to around GH¢29 billion by 2029.

This gradual reduction is expected to create room for banks to reallocate balance-sheet capacity toward private enterprises, particularly small and medium-sized firms linked to infrastructure delivery, supply chains and productive sectors.

Nonetheless, GAB stressed that sovereign risk will remain a key concern.

“From a credit risk management standpoint, the fiscal outlook implies a gradual shift in risk dynamics rather than an immediate elimination of risk,” the report said, adding that banks will need to strengthen exposure limits, conduct rigorous stress tests and closely monitor the interaction between fiscal shocks, interest rates and asset quality.