Ghana’s Energy Sector Faces Deficit Challenges Amid IMF Pressure for Reforms
Ghana’s Energy Sector Faces Deficit Challenges Amid IMF Pressure for Reforms
Ghana’s energy sector continues to be a major fiscal risk, as revealed in the International Monetary Fund’s (IMF) latest staff report. The IMF identified a larger-than-anticipated energy sector deficit in 2024, exceeding initial projections by 0.6 percentage points of GDP. This widening gap has strained public finances, largely due to persistent inefficiencies and financial mismanagement.
Key Challenges
- Inefficiencies at ECG: The Electricity Company of Ghana (ECG) has struggled to fully implement the Cash Waterfall Mechanism (CWM), which was designed to improve payment flows to Independent Power Producers (IPPs) and fuel suppliers.
- Mounting Arrears: Energy sector debts, including legacy debts, reached $2.1 billion (2.8% of GDP) as of December 2023, posing critical fiscal risks.
IMF Recommendations
To stabilize the sector and ensure fiscal sustainability, the IMF emphasized the timely implementation of reforms under Ghana’s Energy Sector Recovery Programme (ESRP). These include:
- Debt Audits:
- Validation of legacy energy sector debts for 2023 and 2024 to be completed by March and August 2025, respectively.
- Tariff Reforms:
- Quarterly electricity and water tariff adjustments under the Public Utilities Regulatory Commission’s (PURC) 2022-2025 Major Tariff Review.
- A recent 3% average electricity tariff increase in October 2024 aims to reduce losses and strengthen financial sustainability.
- Operational Review:
- PURC will conduct a thorough assessment of inefficiencies across the energy sector, targeting cost reductions and improved revenue collection.
Path Forward
The IMF expressed optimism over the government’s progress, noting that a draft energy sector strategy—focused on reducing operational costs—will be finalized by June 2025 and adopted by the Cabinet by September 2025. This strategy is expected to address underlying structural issues that have plagued the sector.
Fiscal Risks
The IMF cautioned that the energy sector remains a significant fiscal liability, warning that any delay in reforms could exacerbate vulnerabilities. Timely execution of policies, improved tariff systems, and streamlined debt management are seen as critical steps toward achieving long-term energy stability.
Ghana’s government, under pressure to resolve these challenges, will need to demonstrate commitment to the ESRP and IMF-backed reforms to avoid further economic strain.
