Energy Sector Financial Shortfall in Ghana: IMF Projects US$1.10 Billion Balloon in 2026

Introduction

The financial viability of Ghana’s energy sector remains a critical concern for economists and policymakers alike. Despite significant government interventions and recent improvements, the energy sector financial shortfall continues to pose a substantial threat to the nation’s fiscal stability. According to a recent Staff Report by the International Monetary Fund (IMF), the cumulative arrears and projected deficits are set to escalate significantly, reaching an estimated US$1.10 billion in 2026.

This article provides a comprehensive analysis of the IMF’s findings, breaking down the current financial landscape, the projected trajectory of the Energy Sector Levy (ESL) shortfalls, and the structural challenges facing the Electricity Company of Ghana (ECG). By examining the specific cost components and the government’s budgetary allocations, we aim to provide a pedagogical understanding of why these shortfalls persist and what measures are being proposed to restore financial sustainability to the power value chain.

Key Points

Background

To understand the magnitude of the US$1.10 billion projected shortfall, one must look at the historical context of Ghana’s energy sector financial management. The Energy Sector Levy Act (ESLA) was established to consolidate energy sector levies to address legacy debts and ensure stable power supply. However, years of accumulated arrears and the use of thermal power generation (often reliant on crude oil or gas) have created a complex financial web.

The International Monetary Fund (IMF) has closely monitored Ghana’s energy sector as part of the country’s broader economic recovery program. The “energy success shortfall” referenced in the report refers to the gap between the revenue the Electricity Company of Ghana (ECG) collects from consumers and the actual cost of supplying that electricity, including generation, transmission, and distribution costs.

In 2025, the government stepped in to cover a US$500 million deficit. While this was US$1.2 billion less than initially budgeted, it highlights that the sector is still not self-sustaining. The government’s intervention was necessary to prevent power generation shortfalls (load shedding) and to settle critical fuel bills.

Analysis

The IMF report offers a granular view of the financial mechanics driving the energy sector debt. The analysis below dissects the 2026 projections and the implications for Ghana’s economy.

The 2026 Financial Gap: A Deep Dive

The projection of US$1.103 billion for 2026 is a critical figure for fiscal planning. It represents the amount of money the government must inject into the sector to keep the lights on without accruing new arrears. This projection is built on a specific revenue-to-cost imbalance:

• Projected Revenue: US$2.607 billion
• Projected Generation Costs: US$3.53 billion
• The Deficit: US$923 million (energy) + US$178 million (gas) ≈ US$1.103 billion

This gap indicates that even with improved collection efficiency, the cost of producing power exceeds what consumers pay. This is a classic tariff deficit issue.

Breakdown of Generation Costs (US$3.53 Billion)

Understanding where the money goes is vital. The IMF report breaks down the estimated generation costs for 2026 as follows:

• Operating Expenditure (US$786 million): The direct costs associated with running power plants.
• Other Fuel Bills (US$918 million): Likely referring to natural gas and other primary fuel sources.
• Liquid Fuel Cost (US$270 million): This is a significant expense. It refers to the use of crude oil or diesel in thermal plants when gas supply is interrupted or insufficient. Reducing this is a key goal of the government’s “de-risking” strategy.
• Management Expenditure (US$478 million): Administrative and overhead costs within the generation companies (GenCos).
• Debt Servicing (US$165 million): Interest payments and amortization on existing loans.

The high cost of liquid fuel is particularly burdensome. The IMF notes that the 2025 shortfall was lower partly because of a reduced reliance on costly liquid fuels. Maintaining this trend is crucial for reducing the 2026 deficit.

The Role of Renegotiated PPAs

A major factor influencing the 2026 budget is the renegotiation of Power Purchase Agreements (PPAs). Many existing PPAs were signed at high tariffs (e.g., US$0.15/kWh or higher). By renegotiating these contracts to lower rates, the cost of electricity generation decreases. The IMF explicitly credits these renegotiations for the “smaller budgeted shortfall” in 2026. This is a strategic move to align the sector’s financial obligations with its revenue-generating capacity.

Fiscal Risks to the Economy

The persistence of this shortfall represents a significant fiscal risk to the Ghanaian government. Every cedi used to plug the energy gap is a cedi not spent on education, health, or infrastructure. The IMF warns that without full financial sustainability for the ECG and other state-owned enterprises (SOEs) in the energy chain, the country remains vulnerable to external shocks and debt distress.

Practical Advice

For stakeholders, investors, and citizens, understanding the energy sector financial shortfall requires actionable insights. Here is how the situation can be navigated and improved.

Strategies for Reducing the Shortfall

To bridge the gap between the projected US$3.53 billion cost and US$2.607 billion revenue, the following practical steps are recommended based on the IMF report and general energy economics:

1. Accelerate PPA Renegotiations: The government must continue to review all legacy PPAs. Moving from “take-or-pay” contracts (where payment is made regardless of power usage) to “take-and-pay” models can significantly reduce capacity charges.
2. Optimize the Fuel Mix: Reducing the US$270 million liquid fuel cost is imperative. This requires maximizing the utilization of natural gas pipelines (like the West African Gas Pipeline) and completing the Atuabo Gas Processing Plant expansion to avoid expensive crude oil generation.
3. Enhance Revenue Collection: While the ECG has made strides, reducing commercial losses (theft, illegal connections, and meter tampering) is essential. The ECG Revenue Assurance program must be strictly enforced.
4. Debt Management: Clearing the US$165 million debt servicing component requires a sinking fund mechanism that is insulated from political interference. The Energy Sector Levy (ESL) revenues should be ring-fenced strictly for these purposes.

What This Means for Consumers

While the IMF report does not explicitly mention tariff hikes, the math suggests that tariff adjustments are often the only way to cover a US$1.1 billion deficit without government bailouts. However, the government is currently subsidizing this gap. Consumers should be aware that the financial sustainability of the power sector is directly linked to the stability of electricity supply and future tariff reviews by the Public Utilities Regulatory Commission (PURC).

FAQ

Conclusion

The IMF’s projection of a US$1.10 billion energy sector financial shortfall in 2026 serves as a stark reminder of the structural challenges facing Ghana’s power industry. While the reduction from the initial 2025 budget indicates progress through renegotiated PPAs and fuel cost management, the sector remains heavily reliant on government support.

Achieving true financial sustainability will require a sustained commitment to reducing operational inefficiencies, maximizing gas utilization over liquid fuels, and ensuring strict revenue collection. For the government, the challenge is balancing the fiscal burden of the energy sector with the need to provide affordable power to Ghanaians. The US$1.1 billion allocation in the 2026 budget is a necessary stop-gap, but long-term solutions lie in deep-seated sector reforms.