9% pay rise: Economic relief for employees, fiscal test for the state

By Ephraim Ofori NUMOSUOR

The government’s announcement of a 9percent upward adjustment in the base pay of public sector workers for 2025 has stirred a wave of conversation across Ghana’s economic and labor landscape. For many public servants, this represents long-awaited relief. For policymakers and analysts, it is a moment of delicate balance — between providing social support and maintaining fiscal prudence.

A real income gain amid cooling inflation

Ghana’s inflation rate, as of November 9th, stands at 8percent, marking a remarkable improvement from the highs of over 50percent in 2022. The 9percent salary adjustment therefore offers a modest real gain in purchasing power — signaling not just relief for workers, but also growing macroeconomic stability.

For years, inflation has eroded the value of public sector pay, forcing households to stretch income across rising food, rent, transport, and utility costs. An increment slightly above inflation restores some balance and reflects government’s recognition of the cost-of-living pressures facing workers. Yet, the real test will lie in how inflation behaves in the months ahead. If inflationary pressures remain contained, workers will truly benefit. But if fiscal expansion fuels a rebound in prices, this nominal gain could be quickly offset.

The fiscal balancing act

Wages and salaries account for one of the largest components of Ghana’s public expenditure — often consuming over 40percent of domestic revenue. Any adjustment, even a moderate one, carries implications for the national budget.

The 9percent increment must therefore be viewed through the lens of fiscal discipline, especially as Ghana continues its three-year IMF-supported economic recovery programme. Government must ensure that this salary adjustment does not widen the fiscal deficit or undermine the recent improvement in sovereign credit ratings. The focus should be on linking compensation to productivity, cleaning the payroll to eliminate ghost names, and using digital systems to improve public sector efficiency. Without such measures, the wage bill could crowd out capital investment and slow down fiscal consolidation.

Protecting social welfare without jeopardizing stability

Public sector pay is both an economic and political tool. It directly affects household welfare, but it also signals the government’s fiscal posture to investors, rating agencies, and international lenders. By granting a modest, inflation-beating increase, the government has struck a balanced tone — showing empathy towards workers while keeping within manageable fiscal limits. However, sustaining this balance requires discipline: wage increases should go hand-in-hand with reforms that improve productivity and accountability within the public service.

Broader economic significance

The salary adjustment coincides with renewed optimism about Ghana’s economic recovery. The recent S&P upgrade to B- with a stable outlook reflects growing investor confidence in the country’s fiscal reforms and debt restructuring progress. But such confidence is fragile. A poorly managed wage expansion, if not matched with revenue growth and expenditure control, could reverse these gains. Fiscal credibility — the ability of government to keep promises and manage spending — remains central to Ghana’s economic narrative going forward.

The way forward

In the medium term, wage policy must form part of a broader strategy to modernize Ghana’s public sector. The focus should be on performance-based pay, automation, and value-for-money service delivery. Policymakers must also look beyond wage adjustments to address the real drivers of living standards — affordable housing, efficient transportation, access to healthcare, and stable food prices.

Ultimately, sustainable wage growth will come not from budget reallocations but from economic expansion — through industrialization, export diversification, and private sector job creation. That is where the nation’s long-term wage resilience lies.

In conclusion, Ghana’s 9percent salary adjustment is a positive step that offers relief to workers and reflects progress in stabilizing the economy. Yet, it also serves as a litmus test for the government’s fiscal discipline. The true success of this policy will depend not on the percentage increase itself, but on whether it is managed within a framework that safeguards stability, promotes productivity, and builds a resilient, inclusive economy.

>>>the writer is a Financial Economist, Research & Policy Analyst. He can be reached via 0248803710 and or [email protected]

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