Ghana’s energy sector faces escalating challenges, prompting the International Monetary Fund (IMF) to call for urgent and bold reforms under the Energy Sector Recovery Programme (ESRP) to restore fiscal stability.
In its latest staff report, the IMF revealed that Ghana’s energy sector deficit in 2024 exceeded projections by 0.6 percentage points of GDP, further straining the country’s public finances. Persistent inefficiencies, including the Electricity Company of Ghana’s (ECG) slow implementation of the Cash Waterfall Mechanism, have worsened arrears owed to Independent Power Producers (IPPs) and fuel suppliers.
Current Challenges
- Rising Deficit:
Energy sector shortfalls surpassed expectations, increasing fiscal risks. As of December 2023, total arrears and legacy debts stood at $2.1 billion, approximately 2.8% of GDP. - Operational Inefficiencies:
Poor implementation of reforms like the Cash Waterfall Mechanism and delays in payments to IPPs have amplified the sector’s financial instability.
Proposed Reforms and Key Measures
The IMF outlined critical medium-term steps to address these challenges:
- Debt Audits:
- Validation of energy sector legacy debt for 2023 and 2024 will be completed by March and August 2025, respectively.
- Tariff Adjustments:
- Quarterly tariff reviews under the Public Utilities Regulatory Commission’s (PURC) 2022-2025 Major Tariff Review to ensure financial sustainability.
- A 3% average tariff increase implemented in October 2024 has already taken effect.
- Operational Review:
- PURC will conduct a comprehensive review of inefficiencies within the energy sector to streamline operations and reduce costs.
- Draft Energy Sector Strategy:
- A strategy focused on cost reduction and improved revenue collection is expected to be finalized by June 2025 and adopted by Cabinet by September 2025.
IMF’s Warning and Outlook
The IMF emphasized that the energy sector remains a critical fiscal risk for Ghana. Without timely and strict implementation of these reforms, vulnerabilities could worsen, further straining public finances.
The IMF remains optimistic that the proposed reforms will stabilize the sector, improve efficiency, and reduce mounting arrears. However, bold and sustained action will be essential for long-term success and fiscal sustainability.
