When The Cedi Gains Ground: Implications For Ghana’s Energy Sector

By Albert Neenyi Ayirebi-Acquah, FCCA, Energy Analyst

Introduction

An Overview of the Cedi’s Performance Since January 2, 2025

In recent weeks, the Ghanaian cedi has not only stabilized but begun to appreciate against the US dollar -a welcome trend not seen in a long time by market participants, analysts, and the public. The response has largely been positive, though questions remain about the durability of the trend, particularly given that some of the underlying drivers – such as external inflows – are beyond Ghana’s direct control.

That said, the broader macroeconomic outlook has improved, with growing consensus that this momentum can be sustained if economic managers remain disciplined. Key contributing factors include the prompt servicing of domestic debt (especially post-Domestic Debt Exchange Program (DDEP) bonds), strong reserve buffers, and a renewed focus on fiscal prudence.

While the appreciation has brought welcome relief across many sectors, it’s worth noting some quiet discontent among exporters, who are beginning to feel the squeeze of a stronger local currency on their margins.

Why the Exchange Rate Matters for the Energy Sector

This article focuses specifically on Ghana’s power sector, where the exchange rate plays an outsized role for several reasons:

• The sector relies heavily on capital-intensive investments, most of which are denominated in US dollars.
• These investments are structured to be recouped over medium- to long-term horizons.
• Project financing is predominantly sourced externally, with implications for foreign exchange exposure and profit repatriation.
• Critically, electricity tariffs are set in Ghana cedis, while a large share of sector expenses—such as fuel, equipment, and power purchase agreements (PPAs)—are USD-denominated.

Given this structure, it becomes clear that the GHS/USD exchange rate is a more critical variable for the power sector than even the domestic interest rate. Over time, persistent depreciation of the cedi – without adequate tariff adjustments to reflect forex losses – has contributed significantly to the build-up of energy sector arrears and debt.

This has become a growing fiscal risk for the entire economy. At the recent IMF/World Bank Spring Meetings, Ghana’s Finance Minister underscored this risk, noting that the energy sector debt is currently the single biggest economic threat facing the country.

It is against this backdrop that the cedi’s recent appreciation must be examined—not simply as a currency movement, but as a potential window of opportunity to restore balance in the sector.

Positive Impacts of the Cedi’s Appreciation

1. Lower Cost of Power Purchased by ECG 

A stronger cedi means ECG’s purchasing power has increased in relation to its dollar-denominated Power Purchase Agreement (PPA) invoices. For example, an average invoice of US$8 million in April 2025 for a single Independent Power Producer (IPP) was equivalent to GHS 113.2 million. By the end of May, if the current exchange rate holds or improves, the same invoice would amount to approximately GHS 103 million – yielding a monthly saving of around GHS 10 million per IPP invoice. Extrapolated across the sector, this could translate into cumulative savings of GHS 450– 560 million between May and December 2025.

2. Higher USD Value of ECG’s GHS Collections

Since ECG collects revenues in cedis, a stronger exchange rate translates into more dollars. ECG’s ~GHS 1.4 billion in April collections equated to about US$99 million. With the same GHS figure in May, the dollar equivalent rises to approximately US$109 million – an effective forex boost of US$10 million in May and ~US$80 – $100 million if current rates are sustained to the end of this year.

3. Reduced Pressure on PURC to Increase Tariffs

With a weighted average GHS/USD rate of 15.6974 during PURC’s Q2 tariff-setting window, the current appreciation of the cedi currently at a spot rate of 12.89 at the time of writing this article significantly reduces the pressure to increase tariffs in the next quarterly review, while creating room to recover forex losses still sitting on ECG’s books.

4. Greater Fiscal Space for Government

Government obligations to settle dollar-denominated energy sector arrears become more affordable in cedi terms, freeing up fiscal resources for other priorities.

5. Reduced Translation Losses for State-Owned Enterprises (SOEs)

A stronger cedi reduces the impact of forex losses on the financial statements of SOEs like ECG, VRA, and GNPC—improving their bottom lines and audit profiles.

6. Improved Disposable Income for Consumers

Lower prices on imported goods and services—which account for an estimated 30–50%2 of Ghana’s CPI—improve consumers’ disposable income, making it easier for households to pay electricity bills on time and sustain consistent usage.

Cautionary Notes

1. Risk of Complacency

There is a danger that power sector and economic managers may become complacent, delaying critical structural reforms – particularly the urgent need to reduce energy sector arrears within the 2025 fiscal framework.

2. Premature Tariff Reductions

The temptation to lower tariffs in response to temporary exchange rate gains could undermine long term sector recovery. Windfall savings should be prioritized for paying down accumulated debts and systemic losses.

3. Failure to Lock in Gains

Without proactive steps – such as refinancing debt, accelerating payments – the sector risks
squandering this window of opportunity created by the cedi’s appreciation.

4. Sustain the Underlying Drivers

It is critical to maintain and reinforce the policy actions currently supporting the cedi’s strength— such as timely debt service, prudent fiscal management, and Gold inflows—to ensure continued currency stability and sustained relief for the energy sector

Strategic Policy Considerations

1. Priorities Prompt Payment of Liabilities

The foremost priority should be the timely settlement of energy sector obligations. This would help reduce the shortfall that must be financed through the budget and potentially lower the sector’s debt stock within the year.

2. Frontload Capital Expenditures where Liquidity Permits

Taking advantage of the favorable exchange rate, government and SOEs should frontload essential capital purchases or forex-based payments to lock in savings and ease future cost pressures.

Conclusion

In a welcome turn of events, one of the major drivers of Ghana’s energy sector instability—persistent currency depreciation—has not only stabilized but reversed course. This has provided much-needed relief to economic managers, sector players, and electricity consumers alike.

If this trend continues, it could offer a rare opportunity to reset the sector, improve its financial position, and reduce the burden of energy-related debt.

President John Mahama’s commitment to tackling energy sector arrears is timely. The cedi’s appreciation is a rare tailwind. If harnessed wisely, it could help Ghana turn the page on its energy sector debt crisis.

Equally important, as Ghana pursues a 24-hour economy, the viability of this initiative will depend heavily on a reliable and financially stable energy sector.

Continuous production and expanded business hours require predictable and affordable electricity.

Without sustained reforms to stabilise the sector, the 24-hour economy risks being undermined by the very power constraints it seeks to overcome.

Source: https://energynewsafrica.com