Policy Brief: Will a Stronger Cedi Relieve Electricity Cost Burdens for Ghanaians?

Despite ongoing global economic challenges, the Ghana cedi ranked among the best-performing currencies globally, appreciating by approximately 24.5 percent against the U.S. dollar during the first five months of 2025 as highlighted in the Bank of Ghana’s (BOG) May 2025 Monetary Policy Committee (MPC) Press Release. This, along with a drop in inflation and improvements in other macroeconomic indicators, has led civil society groups and business operators like CUTS International, Ghana Union of Traders Association (GUTA) among others to call for lower electricity tariffs. This follows a 14.75% increase in the average end-user tariff during the first and second quarter reviews of 2025, with exchange rate volatility cited as a major factor behind the adjustment. Yet, Ghana’s power market remains debt-ridden, operationally inefficient, and facing a looming large tariff review in the fourth quarter of this year as per the 2025 budget.  

The real question, however, is whether this currency appreciation is strong enough to bring electricity costs down meaningfully or will it be absorbed by institutional inefficiencies and legacy debts, offering little genuine relief to consumers. 

Macroeconomic tailwinds and structural weakness in Ghana’s electricity sector 

The cedi appreciation in the first five months of 2025 coincided with a modest improvement in Ghana’s macroeconomic environment. Following the BOG May 2025 MPC release, inflation declined from 23.8% in January to 21.2% in April, supported by exchange rate stability and lower fuel prices. By the release, economic activity also picked up, with the Composite Index of Economic Activity rising by 2.3% year-on-year in March, driven by exports, private sector credit, and construction. On the external front, the country recorded a current account surplus of US$2.1 billion in the first quarter, as its international reserves increased to US$10.7 billion—equivalent to 4.7 months of import cover. In theory, these conditions should translate into reduced electricity tariffs, especially given that most of Ghana’s power generation inputs—primarily fuel, are foreign-currency denominated and imported.  

But currency strength alone cannot treat deep-rooted inefficiencies in the utility sector. The financial weakness of the utilities has been underpinned by deep-rooted structural inefficiencies and shortfalls. For instance, tariffs have remained below cost-recovery levels, propelling utilities’ financial weakness and exposing them to continuous government subsidies. It’s not surprising that the 2025 budget indicated that GH¢20.8 billion (approximately US$1.5 billion) was set aside merely to settle energy sector arrears. Overall Ghana’s energy sector debt has ballooned to 80 billion cedis, highlighting the scale of the fiscal burden. To address these long-standing financial shortfalls and increase visibility of cash flows across the power sector, the government introduced the Cash Waterfall Mechanism (CWM) reform in 2020 meant to introduce more predictable and fairer pass-through of revenues to sector participants, from generation through to distribution. Despite the CWM intended role in ensuring structured liquidity allocation, its application has been inconsistent, with frequent deviations toward irregular settlements.  

Unsurprisingly, the Energy Commission’s 2025 National Statistics Bulletin reported total transmission and distribution losses of approximately 35.26%, with distribution losses making up the bulk of that figure. At the same time, Ghana is bound by high-cost take-or-pay IPP contracts, which require the state to purchase power whether used or not. By early 2025, the government owed IPPs over US$1.73 billion in legacy arrears, despite earlier interventions under the Energy Sector Recovery Programme (ESRP). These challenges are further compounded by inefficiencies within state-owned utilities, making the electricity sector not only financially vulnerable but structurally unsustainable. To cap it all, the 2025 budget revealed a projected US$2.23 billion financing gap—reflecting the difference between the sector’s total funding needs (across generation, transmission, distribution, and debt servicing) and the revenue it is expected to generate. Together, these issues paint a picture of a sector in urgent need of structural reform. 

What to expect in the September 2025 major tariff review 

As part of efforts to stabilize the energy sector under the IMF-supported program, the Mahama-led-government has committed to resuming the quarterly electricity tariff adjustments through the Public Utilities Regulatory Commission (PURC). This measure is intended to narrow the widening gap between electricity supply costs and revenues—driven largely by rising fuel prices and currency fluctuations—and to support the broader program objective of eliminating the accumulation of energy sector arrears. Under the tariff-setting structure, these quarterly tariffs are meant to capture the movements in key macroeconomic parameters such as exchange rates, inflation, fuel prices, and generation mix. Hence in its recent quarterly tariff decision, the Commission approved of tariffs that were going to help recover outstanding proportions of the GHS 976 million owed from 2024, with the remaining half to be rolled into subsequent quarters. 

While the recent cedi appreciation suggests potential tariff relief, the upcoming comprehensive tariff review by the PURC in September 2025 presents a more complex picture. As stipulated in the 2025 Budget in accordance with the IMF-supported program, the tariff review will be more than the usual quarterly reviews and will cover capacity charges, increased usage of liquid fuels, and other capital expenditure (CAPEX). Specifically, the budget says the Weighted Average Cost of Gas (WACOG) will be increased from US$7.836 per mmBtu to US$8.45 per mmBtu to account for higher world gas prices and shifts in the local gas supply pool like Jubilee, Sankofa Gye Nyame, and N-Gas. In line with this, the earlier granted Discounted Industrial Development Tariff (DIDT) for chosen ceramic companies shall be phased out, in line with efforts to rationalize energy-related subsidies and maximize cost recovery in the sector.  

With public pressure already building, PURC will have to weigh this against the broader imperative of keeping the industry fiscally sustainable. This tension creates several plausible policy pathways, each carrying distinct consequences for households, businesses and the nation’s energy future. Stakeholders should prepare for these potential scenarios: 

• Modest tariff reduction: PURC can look at a narrow cut in the downward direction to reflect cedi appreciation, especially if WACOG is stabilized and inflation continues to fall. Such a move would be likely to be driven by political and pressure from the public to reflect the recent appreciation of the cedi. A narrow reduction in the short term can offer relief tokens to consumers while demonstrating the government’s responsiveness to economic progress. Such a move carries fiscal risks associated with it. Unless backed by the full debt restructuring or savings on inefficiency, utilities will continue to fall behind on their payments, forcing the state to intervene through the back door of hidden subsidies or increased future tariff increases. While firms and consumers may be willing to accept a limited cut as part of a comprehensive reform package, there is also the danger of an “affordability illusion.” Unless inefficiencies such as distribution losses are dealt with, consumers could still find themselves with subpar service and higher indirect costs such as acquiring generator or voltage stabilizers to avert the implications of power outages, which would eliminate the actual benefits of a headline tariff reduction. 

• Tariff freeze or rebalancing: With the industry’s huge debt overhang and long-standing operational losses, tariffs can be maintained or rearranged by consumer class, e.g., protecting lifeline consumers while readjusting the rates on the higher consumption brackets. This is a possibility because the industry’s financial exposure is very heavy. Despite the improvement in the macro economy, the size of existing debts and structural losses may lead PURC to maintain tariffs. Alternatively, the Commission can restore balance to the structure by maintaining lifeline rates for low-consumption households while increasing tariffs for higher categories or commercial consumers. This could improve distributional equity but at the cost of undermining the cross-subsidization system that utilities are based on. The charge that is levied on industrial or commercial consumers could also increase operating costs, resulting in job loss or reduced competitiveness in sectors that consume energy. More broadly, freezing tariffs without addressing underlying pressures on costs can delay necessary reforms and initiate a new arrears and supply disruption cycle, as in the 2022–2024 crises. The broader structural problem is that Ghana might again fall back into delaying painful choices, a move that would ultimately erode the credibility of the regulatory regime. 

• Performance-linked adjustments: Under this scenario, PURC can make any tariff hike contingent upon measurable progress by the utilities, such as better revenue collection, reduction in technical losses, or the efficient utilization of the Cash Waterfall Mechanism. The immediate consequence would be to offer direct motivation for operating change. However, the feasibility of such a model depends on rigorous enforcement, which has long been in scarce supply. Without strict oversight of conditional requirements, utilities may commit to this arrangement but ultimately fail to meet their obligations—particularly given their ongoing inability to reduce losses below the Commission’s 21.4% threshold, which has already eroded institutional trust. Additionally, the public will lose patience if there is a lag in tariff relief or its partial realization, especially if the promised service improvements are slow to materialize. Conceptually, this becomes a principal-agent problem, where the regulator must design credible enforcement mechanisms to get utilities to adhere to efficiency promises. 

• A debt-for-efficiency bargain: This is a less conventional but increasingly probable scenario that involves a negotiated debt restructuring, driven by the pure unsustainability of Ghana’s energy sector debt. In this arrangement, the government can offer a “grand bargain” to IPPs, offering to swap arrears for long-term instruments such as securitized bonds, thereby generating fiscal space. In exchange, the distribution outlets would commit to some efficiency goals, such as technical loss reduction or billing system improvement. Consumer tariff relief could then be introduced in stages as utilities attained their performance targets, allowing the government to demonstrate both reform movement and cost savings. There is a global precedent for such an approach in Costa Rica’s debt-for-nature swaps. If implemented under good supervision, this model can bring in long-term price stability and improved quality of service. However, it would have to be followed through with uncommon displays of political will. 

Policy considerations and the way forward 

The recent cedi appreciation is a relief, but it’s insufficient to address the entirety of the sector’s challenges. Tariff adjustments must be guided not just by short-term macroeconomic gains but by a clear-eyed view of long-standing inefficiencies and financial imbalances. Rather than using tariffs as a political lever, the focus should be on building long-term financial stability. Achieving this will require both immediate policy discipline and deeper institutional reforms. Hence, sustained recovery hinges on a few critical interventions. 

One of the most important steps to enhance the financial prospects of Ghana’s power sector is to reform the tariff-setting mechanism. Although quarterly adjustments are now being pursued, the mechanism remains somewhat reactive and ambiguous. The lack of transparency with which these thresholds are articulated and calculated undermines public trust. Without an understandable and consistent methodology, the incentives for lower tariffs can appear capricious or political. Where consumers have a clear line of sight that tariff increases reflect genuine service enhancements, resistance to price adjustment relaxes.  

Secondly, it is equally important that the Cash Waterfall Mechanism be implemented as originally envisioned. Periodic audited compliance with the CWM will not only stabilize cash flows but also make the sector bankable and attractive to independent investors. It is a start at ending the cycle of arrears and crisis bailouts. Moreover, eliminating old subsidies, such as the DIDT, is also a necessary action. While well-meant, these subsidies have a tendency to distort market signals and benefit a select group of companies rather than funding more generic industrial competitiveness. Phasing them out and redirecting that money into efficiency programs focused on better firm performance or lifeline tariffs for threatened consumers can bring about better equity and financial rewards. 

Furthermore, price changes alone will not be enough. The sector also must address its own inefficiencies. Investments in smart metering, grid modernization, and data systems can reduce losses and increase the accuracy of bills. At the same time, governance reforms—like performance-based contracts for utility managers—can set straight incentives and eliminate the complacency culture. Finally, expanding access to non-fiscal financing instruments can potentially fill the sector’s widening gap of investment without worsening the public debt condition. Long-term instruments such as securitized bonds to IPPS can create avenues for mobilizing performance-based capital, as opposed to politically motivated capital. These instruments can change the paradigm of financing from a model of public bailouts to one of results, transparency, and sustainability. 

Conclusion 

The resilience of the cedi provides Ghana with an unusual window of opportunity to realign electricity prices in a manner that serves consumers without worsening the existing challenge within the utility market. However, this opportunity will be significant only if dovetailed with more profound reforms. The September 2025 review is no ordinary run-of-mill adjustment—it is a test case of whether Ghana can orchestrate economic recovery with structural change in the electricity sector. Without consistent reforms in governance, collections, and keeping costs under check, the dividends of the appreciation of the cedi will be short-lived.