The International Monetary Fund (IMF) has urged Ghana to implement bold reforms in its energy sector to address a growing deficit and ensure fiscal stability.

In its latest staff report, the IMF revealed that the energy sector’s deficit in 2024 exceeded expectations, widening by 0.6 percentage points of GDP. This has put further strain on the country’s public finances, compounded by inefficiencies such as the Electricity Company of Ghana’s (ECG) poor management of the Cash Waterfall Mechanism, which has led to significant arrears owed to Independent Power Producers (IPPs) and fuel suppliers.

Despite these setbacks, the IMF expressed optimism about the potential for recovery, with reforms aimed at reducing operational costs and improving revenue collection. A draft energy sector strategy is expected to be finalised by June 2025 and adopted by the Cabinet by September 2025.

To address the challenges, the IMF has outlined key medium-term measures, including:

Debt Audits: Validation audits of energy sector legacy debt for 2023 and 2024, to be completed by March and August 2025.

Tariff Reforms: Quarterly tariff adjustments under the Public Utilities Regulatory Commission’s (PURC) 2022-2025 Electricity and Water Major Tariff Review, aimed at strengthening financial sustainability.

Operational Review: A comprehensive review by PURC of inefficiencies within the energy sector.

In response to rising 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, or 2.8% of GDP.

The IMF has warned that the energy sector remains a significant fiscal risk for Ghana and stressed that timely implementation of reforms is crucial to stabilising the sector and reducing vulnerabilities.

Source:TheDotNews