Legacy debt in Ghana’s energy sector reaches $2bn – Finance Minister reveals

Finance Minister Ken Ofori-Atta has indicated that a number of structural reforms are being undertaken with respect to the $ 3 billion International Monetary Fund (IMF) deal.

Addressing a press conference in Accra on Sunday, June 18, Mr Ofori-Atta said the structural reform agenda is consistent with Government’s own Public Financial Management Strategy, to transition from Central Government to General Government operations.

This shift, he said, is critical as it facilitates clear oversight over key state institutions including Metropolitan, Municipal and District Assemblies (MMDAs), State Owned Enterprises (SOEs) especially Cocobod and Electricity Company of Ghana ECG, and others in the energy sector- and other quasi-State Institutions, whose operations have a significant and direct fiscal impact on Ghana’s economy.

To put it in perspective, he said “about 25% of our assessed debt burden emanates from noncentral Government operations, mainly from State Owned Enterprises (SOEs) such as
COCOBOD and those in the Energy Sector.

“Our ability to institute better governance standards of these institutions to address their liabilities and promote their growth will be significantly improved, especially in this period of collective reform.

“Crucially, we must all remain committed to the agreed wide-ranging and strong
structural reforms designed to address structural weaknesses and build resilience in
key areas including tax policy and tax administration, expenditure commitment control
and arrears clearance, financial stability, financial sector plans, review of statutory
funds, governance and corruption, debt management, fiscal credibility, and energy
sector/cocoa sector SOEs reformation.”

Mr Ofori-Ofori-Atta further indicated that “with legacy debt in the Energy Sector reaching about US$2 billion as at the end of May 2023, and an estimated shortfall of US$5.9 billion between 2023 and 2025, due to the current conditions of SOEs and Independent Power Producers (IPPs) in the value chain in the sector, the sector has been prioritised for comprehensive reforms.

“It is expected that structural reforms in the sector should reduce the shortfall by at least US$2.95 billion over the period.”

It is recalled that Fitch Ratings earlier said that the energy sector in Ghana represented the largest driver of Ghana’s national debt, with the country owing independent power producers a staggering $1.58 billion.

Fitch Ratings also revealed that while Ghana initially approached the IPPs to restructure their debts as part of the External and Domestic Debt Restructuring, the companies objected to the proposal.