The International Monetary Fund (IMF) has highlighted Ghana’s energy sector as a significant source of fiscal risk, revealing that the sector’s legacy debt has reached $2.1 billion, or 2.8% of the country’s Gross Domestic Product (GDP) as of December 2023.

The IMF’s Third Review of Ghana’s Economic Credit Facility (ECF) programme noted that the energy sector continues to struggle with accumulating arrears, which include debts owed to Independent Power Producers (IPPs) and private fuel suppliers. In addition to this, the sector faces a persistent annual deficit, where the revenue generated is insufficient to cover the cost of generating and distributing energy.

The IMF attributes this financial strain to a combination of factors, including weak governance, high system losses, significant revenue collection issues, high fixed costs, and energy tariffs that remain significantly below the cost of providing services.

The Fund has emphasized the importance of reforms within the sector, under Ghana’s Energy Sector Recovery Programme (ESRP), to address these challenges. The programme aims to curb the growth of arrears and clear existing legacy debt. This includes renegotiating power purchase agreements, improving gas consumption to close the supply gap, and implementing tariff reviews to ensure prices reflect energy cost developments such as inflation and fuel prices.

Despite these efforts, the IMF projects that the energy sector’s shortfall will exceed expectations in 2024, adding pressure to the country’s public finances. The shortfall is expected to reach 2.2% of GDP, 0.6 percentage points larger than originally anticipated.

The IMF’s review underscores the urgent need for continued reform and financial stabilization within Ghana’s energy sector to avoid further fiscal strain.

Source:TheDotNews