Ghana’s Energy Debt Forecasted to Double by 2027 Without Action

Ghana’s energy debt is expected to reach $9 billion by 2027, doubling from $4.5 billion by the end of 2024. Eurobonds fell sharply as Finance Minister Ato Forson warned of this crisis. Contributing factors include operational inefficiencies, concentrated power generation, and underpriced tariffs. The government is negotiating debt restructuring while aiming for economic reform under President Mahama.

Ghana’s eurobonds experienced a significant decline on Tuesday following a warning from Finance Minister Cassiel Ato Forson regarding the potential doubling of the country’s energy debt by 2027 unless immediate measures are taken. The 2035 dollar bonds dropped by 1.1% to 73.3 cents on the dollar, marking the lowest value in a month. Similarly, the 2030 bonds fell by 0.9% to 77.83 cents on the dollar.

By the end of 2024, Ghana’s energy debt stood at $4.5 billion, with projections indicating it could reach $9 billion by 2027. This dire situation arises as Ghana continues to recover from its 2022 debt default, having recently undertaken a substantial restructuring of its $47.5 billion public debt. The energy sector is under mounting financial pressure, contributing to the challenges faced by the country.

Several factors are contributing to the escalating energy debt in Ghana. The state-run Electricity Company of Ghana (ECG) accounts for only 62% of the energy it purchases, indicating significant operational losses. Additionally, the power generation sector lacks competition, and current electricity tariffs remain artificially low, set below actual production costs, exacerbating the financial crisis.

This warning was delivered during a national economic dialogue in Accra, convened by President John Mahama, who assumed office in December with promises of economic reform. Ghana is concurrently engaged in negotiations with 60 international banks to restructure $2.7 billion in loans. To combat the financial challenges, President Mahama has vowed to reduce government spending, refine the IMF’s $3 billion program, and work towards restoring investor confidence in Ghana, the world’s second-largest producer of cocoa.

In summary, Ghana’s energy debt is projected to potentially double to $9 billion by 2027 without timely intervention. The critical challenges stem from operational inefficiencies within the Electricity Company of Ghana, an uncompetitive power generation sector, and unsustainable tariff structures. The government’s ongoing debt restructuring efforts and commitment to economic reform are crucial for restoring stability and confidence in the nation’s economy.

Original Source: techlabari.com