Tackle energy sector deficit with bold reforms

Tackle energy sector deficit with bold reforms – IMF urges Ghana

Ghana’s energy sector continues to face significant challenges, with the International Monetary Fund (IMF) urging strict compliance with the Energy Sector Recovery Programme (ESRP) to restore stability and ensure fiscal sustainability.

In its latest staff report, the IMF revealed a larger-than-expected energy sector deficit in 2024, further straining public finances as shortfalls exceeded projections by 0.6 percentage points of GDP. Persistent inefficiencies, including the Electricity Company of Ghana’s (ECG) poor implementation of the Cash Waterfall Mechanism, have exacerbated arrears owed to Independent Power Producers (IPPs) and fuel suppliers.

Despite these setbacks, the IMF expressed optimism about upcoming reforms. A draft energy sector strategy aimed at reducing operational costs and enhancing revenue collection is expected to be finalized by June 2025 and adopted by the Cabinet by September 2025.

To tackle the mounting challenges, the IMF has outlined several medium-term measures:

Debt Audits: Completion of energy sector legacy debt validation audits for 2023 and 2024 by March and August 2025, respectively.
Tariff Reforms: Quarterly tariff adjustments under the Public Utilities Regulatory Commission’s (PURC) 2022-2025 Electricity and Water Major Tariff Review. These adjustments, supported by technical analyses, aim to strengthen financial sustainability.
Operational Review: PURC will also conduct a comprehensive review of key inefficiencies across the energy sector.

To curb losses, a 3% average electricity tariff increase introduced in October 2024 is already in effect.

As of December 2023, energy sector arrears, including legacy debts, stood at $2.1 billion, equivalent to 2.8% of GDP. The IMF has warned that the energy sector remains a critical fiscal risk, emphasizing that timely implementation of these reforms is essential to mitigating vulnerabilities and achieving sector stabilization.

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