IMF: Cedi Appreciation, Improved ECG Collections Ease Ghana’s Energy Sector Financial Burden

(Credit: Citi FM / Channel One TV)

ACCRA – The International Monetary Fund (IMF) has attributed recent improvements in the fiscal performance of Ghana’s energy sector to a combination of exchange rate stability, improved domestic revenue collection, and strategic energy management.
Speaking in an interview on The Point of View on Channel One TV (operated by Citi FM), the IMF Resident Representative in Ghana, Dr. Adrian Alter, highlighted that the appreciation of the Ghanaian Cedi, better revenue collections by the Electricity Company of Ghana (ECG), and a disciplined implementation of the Cash Waterfall Mechanism (CWM) have collectively mitigated fiscal risks to public finances.

The Dollar Factor and Currency Relief
According to Dr. Alter, a major driver behind the reduced fiscal pressure is the strengthening of the local currency against the US Dollar.
Because the majority of energy sector operational costs—including payments to Independent Power Producers (IPPs), capacity charges, debt servicing, and fuel supply contracts—are indexed in foreign currency, any local currency depreciation dramatically inflates sector shortfalls.

“The government in the 2025 budget had in mind a certain exchange rate, and most of the expenses on the energy side are in dollars. Imports of fuel, so fuel suppliers are paid in dollars, all the IPPs are paid in dollars,” Dr. Alter noted during his interview with Bernard Avle. “When you translate that into cedis, if the currency appreciates, then there is an improvement.”

Historically, exchange rate volatility has been the single fastest-acting driver of debt accumulation across Ghana’s energy value chain. The recent currency stabilization lowers the cedi cost required to meet these heavy dollar obligations.
Key Data & Financial Landscape
To understand the scale of the relief, recent IMF assessment data underscores the structural financial challenges being addressed:

• Annual Shortfall Reduction: Ghana’s energy sector financial shortfall (the gap between revenue generated and overall operational costs) peaked at approximately $1.6 billion (~1.4% of GDP) in 2024. Due to currency gains, tariff resets, and demand growth, this shortfall narrowed to roughly $1.4 billion (~1.2% of GDP) in 2025.
• Reduction in Payables/Arrears: Total outstanding payables to IPPs and fuel suppliers reached a peak of $2.2 billion (1.9% of GDP) in early 2025. Through government budget transfers and gas credit arrangements, this stock was reduced to approximately $1.7 billion (1.5% of GDP) by the start of 2026.
• Fiscal Drag: Government transfers into the energy sector to cover unpaid ECG invoices and legacy debts have historically swallowed up to $1.5 billion – $2.0 billion annually, putting severe pressure on capital expenditure for infrastructure and social programs.
  Revenue Collections & Energy Mix Optimization
  Beyond macroeconomic factors, Dr. Alter pointed out internal structural improvements within the domestic energy distribution chain:
• Better ECG Revenue Collections: Improved billing and debt recovery measures at the Electricity Company of Ghana have generated higher cash inflows, easing systemic liquidity constraints.
• Implementation of the Cash Waterfall Mechanism (CWM): Enhanced adherence to the CWM ensures that revenues collected from consumers are transparently and automatically distributed to upstream generation and transmission companies according to priority, preventing revenue lock-up at the distribution level.
• Strategic Shift to Domestic Gas: The government has made a deliberate push to alter its power generation mix. By prioritizing domestically produced natural gas over expensive imported liquid fuels (such as Heavy Fuel Oil or Light Crude Oil), the generation cost per kilowatt-hour has fallen significantly.

“The government has been more careful about the energy mix and trying to reduce the costs of producing electricity. Using domestically produced gas is much better than importing liquid fuel from abroad,” Dr. Alter added.

Sustaining the Momentum
While recent macroeconomic tailwinds and domestic measures have injected much-needed relief into the power sector, the IMF stressed that these gains remain fragile without continued reform.
Sustaining long-term solvency will require persistent collection efforts by ECG, curbing distribution/commercial power losses, adhering strictly to tariff structures, and fully clearing the remaining legacy arrears to power producers.

Reported by the Adoa News Team.