How World Bank's $300mn will impact Ghana's fiscal stability

The World Bank has approved a $300 million Development Policy Financing for Ghana, the first in a series of three disbursements aimed at restoring fiscal sustainability, supporting financial sector stability, and promoting private sector development. This funding comes at a crucial time for Ghana, as the country grapples with the aftermath of a macro-crisis caused by structural weaknesses and external shocks in 2020 and 2022. The resulting unsustainable public debt path led to soaring inflation, pressure on the balance of payments, and increased poverty and food insecurity among the most vulnerable populations. In response, the government of Ghana, with the support of the IMF and World Bank, has implemented a robust reform program to address these challenges. These initiatives include a domestic debt exchange program, agreements with official and commercial creditors, and various other reforms that are beginning to yield positive results. Economic indicators have shown improvement, with GDP growth at 2.3%, inflation decreasing to 23% in December 2023, and enhanced fiscal and external balances. The recently approved financing from the World Bank is part of the coordinated efforts to stabilize Ghana's economy in the short term and set the stage for sustainable growth in the medium term. The program focuses on enhancing financial discipline in the energy sector, a historically burdensome area for Ghana's budget. In the 90s, the government signed long-term contracts with private entities to address power shortages, leading to significant legacy debts due to underutilization of new generation plants. The government's energy sector recovery program aims to reform the sector for greater financial sustainability by renegotiating power purchase agreements, tariff reforms, improving collection rates, and reducing losses. These efforts have resulted in tariff increases to approach cost recovery levels, renegotiation of legacy debts, improved financial transparency, and regulatory reforms to enhance operational performance. The World Bank is providing financial and technical support to drive these reforms and improve sector performance. Despite the challenges ahead, the World Bank remains optimistic about Ghana's progress towards energy sector recovery and financial sustainability. The collaboration between the government, donor community, and development partners is crucial for implementing and monitoring reform programs effectively. With continued support and commitment, Ghana is on track to achieve financial stability and sustainable growth in the near future.