Ghana’s Energy Debt Forecast to Double by 2027 Without Urgent Action

Ghana’s energy debt could reach $9 billion by 2027, according to Finance Minister Cassiel Ato Forson. Eurobonds fell sharply as the country grapples with financial strain following a 2022 debt default and a recent restructuring of its public debt. Major factors in rising energy debt include high operational losses, lack of competition, and underpriced electricity tariffs.

Ghana’s eurobonds experienced a significant decline following a warning from Finance Minister Cassiel Ato Forson regarding the potential doubling of the country’s energy debt by 2027 without immediate intervention. As of the close of trading, the 2035 dollar bonds dropped 1.1% to 73.3 cents on the dollar, representing their lowest value in a month, while the 2030 bonds fell by 0.9% to 77.83 cents on the dollar.

As of the end of 2024, Ghana’s energy debt stood at $4.5 billion but is projected to escalate to $9 billion by 2027. The country is still reeling from the effects of a debt default that occurred in 2022 and has recently undergone a significant restructuring of its public debt, totaling $47.5 billion. Despite these efforts, Ghana continues to experience considerable financial stress, particularly within its struggling energy sector.

Several factors contribute to the rising energy debt, notably high operational losses within the state-run Electricity Company of Ghana (ECG), which only recovers 62% of the energy it purchases. Furthermore, the power generation sector remains highly concentrated, with limited competition exacerbating the situation. Additionally, electricity rates are maintained below production costs, which hinders fiscal sustainability.

This critical warning was delivered during a national economic dialogue held in Accra and hosted by President John Mahama, who has promised economic reforms since taking office in December. Presently, Ghana is in negotiation with 60 international banks to restructure $2.7 billion in loans, necessitating urgent and strategic fiscal measures. Furthermore, President Mahama has committed to reducing spending, refining the IMF’s $3 billion program, and restoring investor confidence in Ghana, the world’s second-largest cocoa producer.

In summary, Ghana faces a troubling trajectory for its energy debt, with projections indicating a potential rise to $9 billion by 2027. The ongoing recovery from past financial difficulties, compounded by inefficiencies in the energy sector, underscores the urgency for reform. The government’s proactive measures under President Mahama’s leadership will be crucial in restoring stability and investor confidence in the economy.

Original Source: techlabari.com