ASEC Identifies Four Critical Gaps in Ghana’s 2026 National Budget for the Energy Sector
After a careful review of the 2026 Budget Statement and Economic Policy, the Africa Sustainable Energy Centre (ASEC) has identified some loopholes in the Government’s Budget, as read by Finance Minister, Dr Cassiel Ato Forson on November 13, 2025.
This Year’s Budget, titled “Resetting for Growth, Jobs, and Economic Transformation,” has been hailed by the public and some key stakeholders as a success, cementing a major fiscal turnaround in 2025. With public debt falling dramatically, the Cedi experiencing a cumulative appreciation of nearly 35%, and the primary balance hitting a surplus of 1.6% of GDP, the government deserves credit for restoring macroeconomic stability. However, a deeper dive into the budget reveals that this hard-won stability is perched precariously on a time bomb: the energy sector. Despite successful debt renegotiations that saved over $250 million and boosted the Electricity Company of Ghana’s (ECG) monthly revenue by 90% (from GH¢900 million to GH¢1.7 billion) due to better enforcement of the Cash Waterfall Mechanism (CWM), the structural haemorrhage remains unaddressed.
The 2026 Budget's approach to energy risks undermining the entire fiscal consolidation agenda through four systemic loopholes.
First and foremost, the single most alarming figure in the budget is the combined commitment of GH¢20 billion directed at the power sector in 2026. This figure comprises GH¢15.2 billion earmarked for "energy sector shortfall payments" and GH¢4.8 billion designated to service legacy debt of the Independent Power Producer (IPP).
While settling legacy debt is necessary, the massive GH¢15.2 billion allocation for shortfalls raises serious structural questions. These shortfalls are primarily driven by high Technical and Commercial (T&C) losses at the distribution level, widely cited as chronic risks. The 2026 Budget fails to explicitly mandate quantifiable, time-bound targets for ECG to reduce these losses.
By continuing to cover this deficit without linking the massive fiscal injection to performance metrics (for example, reducing T&C losses from prevailing high rates to a specific percentage by year-end), the government is effectively transforming a temporary rescue measure into an institutionalised, expected subsidy. This lack of accountability weakens the commercial incentives necessary for ECG to implement politically difficult and operationally costly reforms, guaranteeing the deficit will recur in the 2027 Budget cycle.
Secondly, a profound fiscal threat lies in the proposal to revise the investment policy of the Ghana Petroleum Funds (GPFs) to permit domestic investment in commercial state-owned energy projects. The Ghana Petroleum Funds (which include the Ghana Stabilisation Fund and the Ghana Heritage Fund) are legislatively mandated as external stabilisers, designed to serve as a hedge against external shocks and commodity volatility in hard currency. This mandate is crucial because they are held in US Dollars, offering a financial cushion when the Cedi depreciates.
Although the government notes that the GPFs have yielded low returns (averaging about 1% per year) due to legal restrictions requiring low-risk, foreign-denominated securities, diverting them into domestic commercial ventures will be particularly beneficial in the historically distressed energy sector. This exposes national wealth to localised commercial risk. This move compromises the Funds' primary stabilisation role, weakening the nation's capacity to absorb future external shocks and effectively cannibalising a critical layer of financial protection.
The third loophole identified is that the government's plan to immediately commence construction of a massive 1,200 MW state-owned thermal power plant in 2026 raises concerns regarding institutional memory.
The core cause of the energy sector’s historical US$1.4 billion legacy debt was the structural flaw of excess generation capacity. Building another massive state-owned plant risks replicating this precise mistake. While the government has secured an additional 150 million standard cubic feet of gas per day (MMscf/day) in new supply from Jubilee and OCTP partners, the new generation capacity will only compound the sector's fixed capacity payment charges if the underlying distribution and revenue collection problems (T&C losses) are not fixed first.
This strategy suggests a continued policy bias towards obvious state-led generation projects over the essential, albeit less visible, foundational distribution efficiency reforms.
Finally, ASEC identified that the Government's failure to execute the Annual Budget Funding Amount (ABFA). The Underutilisation of Petroleum revenues intended for national development through the Annual Budget Funding Amount (ABFA) continues to suffer from catastrophic execution deficits. As of September 2025, total available ABFA funds amounted to US$290.0 million, yet the actual utilisation rate was a dismal 0.43%
This failure highlights chronic weaknesses in public financial management, particularly in project preparation and disbursement efficiency. The inability to deploy budgeted petroleum funds for projects, including the GH¢30 billion Big Push Infrastructure Programme, constrains growth, starves priority sectors of capital, and undermines the government’s credibility in translating revenue into productive, job-creating infrastructure.
Strategic Recommendations: Anchoring Stability with Structural Integrity
To move Ghana's economy beyond a fragile "macro miracle" and permanently defuse the "energy monster," the Africa Sustainable Energy Centre (ASEC) recommends the following:
Mandate Performance-Based Funding for ECG: The GH¢15.2 billion shortfall allocation must be explicitly conditioned on ECG achieving specific, measurable, and quarterly targets for T&C loss reduction. The Ministry of Finance should enforce this to transform the funding from a subsidy into a tool for reform.
Accelerate Distribution Reform: The Private Sector Participation (PSP) process for ECG concession contracts, currently targeted for Q3 2026, must be accelerated to the first half of 2026. Transferring commercial risk to a private operator is the ultimate fiscal firewall necessary to end the continuous need for central government bailouts.
Protect Sovereign Wealth: The proposal to invest the Ghana Petroleum Fund (GPF) domestically in commercial projects must be abandoned. The GPFs must retain their core mandate as an external fiscal stabiliser, invested only in low-risk, foreign-denominated securities, consistent with the Petroleum Revenue Management Act (PRMA).
Re-evaluate Generation Expansion: An independent, updated Capacity Needs Assessment (CNA) must be completed before any binding capital commitments are made to the 1,200 MW thermal plant. Priority investment should shift immediately to transmission grid modernisation and system efficiency upgrades to maximise the utilisation of existing capacity before commissioning new generation that risks creating future excess capacity payments.
