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After issuing more than 17 billion cedis ($3.1 billion) in bonds over the past two years to bail out banks and repay energy arrears, Ghana faces a new debt risk.
Independent power producers dismissed a plan by Finance Minister Ken Ofori-Atta to renegotiate deals for surplus supply and said they will only accept a termination settlement of $2 billion.
The country has almost double the capacity to meet its peak demand of about 2,700 megawatts, a luxury that contributed to an additional 5.1 billion cedis, or 1.5% of gross domestic product, to Ghana’s liabilities this year alone.
Separately, excess gas supply will add as much as $850 million to Ghana’s obligations from 2020.
The power deals will impact Ghana’s finances regardless of whether they’re renegotiated or not, said Leslie Dwight Mensah, an economist at the Accra-based Institute of Fiscal Studies.
“The liquidation, as the minister is seeking, actually is the lesser of two evils because if it happens it will be handled by debt,” said Mensah. “On the other hand, if we fail to renegotiate then the expenses of paying for power that we can’t use will continue.”
This year’s liability is a once-off and won’t recur once the contracts are renegotiated, Deputy Finance Minister Charles Adu Boahen said after a request for comment. “As the energy reforms kick in, this will be a one-time intervention,” he said.
The country’s debt rose to 204 billion cedis at the end of June, or 59.2% of GDP, from 52.1% the year before and compared to Ofori-Atta’s intent to keep the level below 60% of GDP. The tally includes 11.2 billion cedis in bonds that were issued to safeguard client deposits held at failed lenders as the central bank concluded a cleanup of the finance sector.
Separately, Ghana has also sold more than 6 billion cedis in securities to settle unrelated legacy debts of the energy sector since October 2017. While the government issued the bonds through a special-purpose vehicle and didn’t back it with a sovereign guarantee, the program allows for a further 4 billion cedis that may be issued as soon as designated fuel levies are sufficient to sustain more sales.
In April, West Africa’s second-biggest economy concluded a four-year bailout program with the International Monetary Fund. Under the IMF’s supervision, Ghana lowered debt levels and narrowed its budget deficit after years of chronic overspending.
While the government is not directly responsible for paying power producers, the liabilities will add to the losses of state utilities, said Mark Bohlund, Africa economist at Bloomberg Economics in London.
“This will require capital injections from the government at some point, similar to the government recapitalization of banks in 2018,” said Bohlund. “When this happens, it will require more government borrowing.”
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