IMF calls on Ghana to tackle energy sector deficit with bold reforms

Ghana’s energy sector continues to face severe challenges, with the International Monetary Fund (IMF) urging decisive action through strict adherence to the Energy Sector Recovery Programme (ESRP) to restore stability and achieve fiscal sustainability.

In its latest report, the IMF disclosed a larger-than-anticipated energy sector deficit for 2024, exceeding projections by 0.6% of GDP and worsening public financial pressures.

Inefficiencies, such as the Electricity Company of Ghana’s (ECG) weak implementation of the Cash Waterfall Mechanism, have deepened arrears owed to Independent Power Producers (IPPs) and fuel suppliers.

Despite these hurdles, the IMF remains optimistic about reforms underway.

A comprehensive energy sector strategy aimed at reducing costs and improving revenue collection is set to be finalised by June 2025 and adopted by the Cabinet by September 2025.

The IMF has outlined key medium-term measures to address these challenges:

Debt Audits: Validate energy sector legacy debts for 2023 and 2024 by March and August 2025, respectively.

Tariff Reforms: Implement quarterly tariff adjustments under the Public Utilities Regulatory Commission’s (PURC) 2022-2025 Electricity and Water Tariff Review. These changes, guided by technical analyses, aim to boost financial stability.

Operational Efficiency: Conduct a sector-wide review of inefficiencies under PURC’s guidance.

A 3% average electricity tariff increase introduced in October 2024 is already in place to curb losses.

As of December 2023, the sector’s arrears, including legacy debts, stood at $2.1 billion (2.8% of GDP).

The IMF warns that the energy sector poses a significant fiscal risk, stressing that swift reform implementation is critical to stabilising the sector and safeguarding Ghana’s economic future.