Ghana’s engagement with the International Monetary Fund (IMF) has been a pivotal aspect of its economic history, marked by a series of agreements and financial programs aimed at stabilising and revitalising the nation’s economy. Since joining the IMF in 1957, the same year it gained independence, Ghana has often sought the Fund’s financial assistance and policy guidance particularly during times of economic distress. These interactions have encompassed various structural adjustment programs in the 1980s and 1990s, aimed at economic liberalisation and fiscal discipline, as well as more recent efforts to address fiscal imbalances and promote sustainable growth. The relationship between Ghana and the IMF has been a blend of cooperation and contention, reflecting the complexities of implementing economic reforms in a developing country.
In 2022, Ghana sought assistance from the International Monetary Fund primarily due to mounting economic challenges exacerbated by both global and domestic factors. The country faced significant fiscal deficits, rising public debt, and inflationary pressures, partly driven by the economic fallout from the COVID-19 pandemic and the Russia-Ukraine conflict which disrupted global supply chains and increased commodity prices. Additionally, a depreciating currency and dwindling foreign exchange reserves strained the nation’s financial stability. These economic difficulties prompted the Ghanaian government to turn to the IMF for support in restoring macroeconomic stability, improving investor confidence, and implementing reforms to ensure sustainable economic growth. The move was seen as a necessary step to address immediate fiscal imbalances and lay the groundwork for long-term economic resilience.
Ghana started implementing a US$3bn three-year Extended Credit Facility (ECF) agreement with the IMF in May 2023 and has since received the sum of US$1.2bn. This is under the country’s homegrown Post-COVID-19 Programme for Economic Growth (PC-PEG), aimed at restoring macroeconomic stability and debt sustainability, building resilience, and laying the foundation for a stronger and more inclusive growth.
During the recent review, the IMF mission team observed that the country had met most of the quantitative targets with strong progress made on the key structural reform milestones. The $360 million third tranche of the IMF has been credited to the Bank of Ghana (BoG) account, after Ghana secured the Executive Board’s approval of the second review. The fourth tranche of another $360 million is expected in the fourth quarter of 2024 after the IMF Executive Board approves the third review.
Ghana’s Energy Sector Challenges
Ghana’s energy sector is a significant source of financial strain, accumulating approximately $1 billion in debt annually, with about $500 million arising from excess capacity charges. A 2023 IMF assessment noted that while Ghana has nearly doubled electricity tariffs over the past year to approach cost recovery levels, issues with distribution and commercial losses persist. Below-cost-recovery tariffs often influenced by exchange rate fluctuations combined with distribution losses, excess capacity, and take-or-pay contracts have resulted in substantial financial shortfalls. The IMF estimated that Ghana’s outstanding energy sector debt by the end of 2022 would have reached $1.6 billion, primarily owed to Independent Power Producers (IPPs) and fuel suppliers, approaching $2 billion.
The IMF’s assessment noted that the government continued to accumulate payables in the first half of 2023, breaching the program’s indicative targets. While non-energy sector payables declined, energy sector payables increased due to low recoveries, tight financing conditions, and ongoing negotiations with IPPs. The sector faces additional challenges during foreign exchange crises as power generation costs are primarily in dollars while revenues are in cedis, leading to significant exchange losses during debt settlements. According to the World Bank, Ghana incurs losses of over $680 million yearly due to load shedding and power outages.
Ghana’s current peak demand has surged to 3,618 MW, significantly exceeding the available capacity of 3,251 MW. Despite an installed capacity of 5,626 MW, the nation utilises only about 58%, leaving a considerable deficit of 2,375 MW. This deficit is exacerbated by a 740 MW shortfall due to ongoing maintenance, further straining the electricity supply infrastructure. Among the maintenance issues, 330 MW remains uncertain regarding restoration timelines, complicating grid stability. Additionally, four thermal plants capable of generating 595 MW are offline due to inadequate fuel supply, and a fault in the TICO unit 3 plant has rendered 120 MW unavailable until December 2024. Consequently, Ghana faces a significant 1,455 MW shortfall in electricity generation capacity with limitations in gas supply worsening the challenge. Despite efforts to reduce power exports by 40% during peak hours to prioritise local demand, the gap persists.
Improved Sector Governance
The International Monetary Fund (IMF) has urged Ghana’s government to enhance the governance of the country’s energy sector to address the issues contributing to the recent irregularities in electricity supply. The Finance Minister, Dr Mohammed Amin Adam, recently disclosed that Ghana’s energy sector faces a financing gap of approximately $1.9 billion. He has since advocated for private sector investment, assuring that the government has positioned the sector for profitability.
“Progress has been made in increasing transparency and addressing the sector’s shortfalls including implementing tariff increases but more needs to be done to improve governance and reduce technical and commercial losses,” the IMF stated. The Fund said in a correspondence with the Ghana News Agency that the energy sector is critical to Ghana’s economy, with current power disruptions significantly impacting people’s lives.
In response to the GNA’s inquiries, the IMF stressed the importance of enhancing the energy sector’s governance framework, particularly in addressing technical and commercial losses. Under its current $3 billion Extended Credit Facility (ECF) program with Ghana, the IMF, in partnership with the World Bank is supporting the government in implementing necessary reforms in the sector.
“These reforms will take time. And we remain committed to working with the government to help build a more sustainable and resilient energy sector for Ghana’s future,” the spokesperson said.
The Finance Minister, Dr Mohammed Amin Adam echoed these sentiments, noting the government’s progress in achieving key performance indicators under the program. These include six quantitative performance criteria, three indicative targets, and one structural benchmark due by the end of December 2023, as well as four structural benchmarks due by the end of March 2024. “For the energy sector in particular, we’ve discussed the possibility of ensuring that the shortfall in the sector is reduced,” he said, adding that the government will conduct a sector-wide audit, strengthen the implementation of the cash waterfall mechanism, and review the tariff-setting methodology to enhance transparency.
“As we forge ahead, we remain committed to the effective implementation of the IMF program and ensuring sustained growth and stability of the Ghanaian economy. With the support of all stakeholders, we are confident in our ability to achieve our objectives and build a stronger and more resilient nation,” Dr Adam stated.
In an interview with the GNA, the Executive Director of the Institute of Energy Security (IES), Nana Amoasi VII emphasised the need for enhanced transparency, accountability, efficiency, and effectiveness in managing and regulating the energy sector. He noted that the IMF’s call underscored concerns about the financial instability of Ghana’s energy sector, particularly the power sub-sector which is plagued by debt mismanagement, low revenue generation, and fiscal indiscipline.
Nana Amoasi VII suggested addressing these concerns through a comprehensive strategy which includes legislative and policy reforms, stakeholder collaboration, monitoring and evaluation, public awareness, and technological innovation. “It is equally important to consider strengthening regulatory institutions and ensuring policy consistency and coherence. We also cannot overlook the financial management and sustainability of the sector”, he said.
A Robust and Resilient Sector
If implemented effectively, the proposed sector reforms could significantly reposition Ghana’s energy sector on a more sustainable trajectory. Enhanced governance and increased transparency will help reduce technical and commercial losses, while improved tariff-setting methodologies will ensure fairer cost recovery. Strengthening regulatory institutions and adopting comprehensive policy reforms can attract private sector investments, fostering innovation and efficiency. Addressing the financial mismanagement and operational inefficiencies will not only stabilise the sector financially but also enhance its reliability, ultimately benefiting consumers and the broader economy. These reforms, supported by the IMF and other stakeholders, hold the potential to transform Ghana’s energy sector into a robust and resilient foundation for the country’s future growth and development.