Ghana: the IMF warns against fuel subsidies four years after the debt crisis

According to the IMF’s latest assessment, Ghana has improved its debt risk profile. This development comes after the severe debt crisis the country faced in 2022, which was notably exacerbated by the deterioration of the budget deficit.

Nevertheless, the international financial institution urges Accra to avoid the return of mechanisms that could permanently increase public spending. It particularly targets the recently reintroduced fuel subsidies aimed at limiting the impact of rising pump prices.

These subsidies temporarily help contain costs for households and businesses. However, they transfer part of the bill to the state budget when international prices rise or when the national currency depreciates.

Ongoing Debt Risk Under Surveillance

The classification of debt risk as “moderate” does not mean that Ghana’s financial difficulties are definitively resolved. It indicates that the outlook has improved, but that debt sustainability remains exposed to budgetary decisions, financing conditions, and developments in energy markets.

Before its 2022 crisis, Ghana had already used fuel subsidies to cushion the effects of soaring prices. Their maintenance contributed to widening the public deficit in a context marked by rising costs of energy imports and tensions on state finances.

The IMF’s warning comes as authorities seek to maintain the gains from their stabilization program. For the institution, a generalized support policy for fuels could reduce the available budgetary space and complicate efforts to restore creditor confidence.

The exact cost of the recently introduced subsidies and their duration of application have not been specified in the available information. Therefore, authorities will have to balance short-term purchasing power protection with the control of public expenditure, while the country remains under the scrutiny of its financial partners.