IMF flags $2.2bn power sector gap, urges urgent reforms
By Praisebell Rosemond Larbi
Ghana’s energy sector is expected to record a staggering financial shortfall of USD2.2 billion by the end of 2025, the International Monetary Fund (IMF) projected in its latest review of the country’s economic program.
According to the Fund, the persistent gap is driven primarily by massive commercial and technical losses at the Electricity Company of Ghana (ECG), as well as delays in electricity tariff adjustments, particularly amid exchange rate volatility and rising power generation costs.
The revelation has renewed public debate about the sustainability of Ghana’s energy sector financing, especially in light of numerous levies already imposed on petroleum consumers. Many industry analysts warn that despite these taxes, the country’s ballooning energy sector debt is unlikely to ease anytime soon without structural reforms.
Budgetary Allocation and Policy Response
In an attempt to cushion the expected deficit, the 2025 National Budget has earmarked GHS27.1 billion (approximately USD1.7 billion) to cover part of the shortfall. However, this provision assumes that key policy actions will be accelerated over the coming months to reduce the fiscal burden.
These proposed interventions include: Resumption of quarterly tariff adjustments, which had previously stalled; Accelerated implementation of the Energy Sector Recovery Programme (ESRP); Completion of a multi year tariff outlook (MYTO) by end September 2025 to reflect actual energy production costs; Enhanced revenue collection and measures to curtail arrears accumulation.
Some Progress Recorded
Despite the daunting outlook, the IMF acknowledged some modest progress in recent months.
Notably, the Public Utilities Regulatory Commission (PURC) announced a 14.75 percent increase in electricity tariffs in April 2025, following a freeze on adjustments in December 2024 and March 2025. The tariff hike is seen as a step toward restoring cost reflective pricing in the power sector.
Additionally, Cabinet has approved plans to open the electricity distribution sub sector to private sector participation, a move scheduled for rollout by end September 2025 as part of structural reforms.
Furthermore, the government has completed and published validation reports for ECG’s revenue and collections for Q4 2023 and 2024, although these were delivered later than required.
Cash Waterfall Mechanism Under Scrutiny
A major source of concern remains the Cash Waterfall Mechanism (CWM), a critical framework designed to ensure equitable and transparent allocation of ECG’s revenues to sector players.
The IMF report highlights glaring inefficiencies in the CWM’s implementation. For instance, ECG declared GHS5.3 billion in collections, but only GHS3.9 billion was distributed, raising questions about accounting discrepancies and prioritization.
The report also revealed that some Independent Power Producers (IPPs) received significantly less than anticipated due to a combination of increased fuel payments and the inclusion of a new IPP, which collectively diluted the available CWM allocations.
“The deviation between validated and declared collections, and the mismatch between CWM allocations and actual payments, continue to undermine trust in the system,” the IMF stated.
The Road Ahead
The IMF urges Ghana to press ahead with structural reforms to enhance transparency, improve cost recovery, and reduce inefficiencies in the energy sector. Key recommendations include:
Strict adherence to CWM guidelines;
Up to date publication of revenue collection data;
Full cost recovery tariffs;
Strengthened oversight of ECG’s operational and financial performance.
Failure to act, the Fund warns, could threaten the stability of the broader economy by placing unsustainable pressure on public finances.
