Ghana Seeks New Terms for Energy Deals to Plug Budget Deficit
(Bloomberg) -- Ghana will seek new terms for deals that account for almost half of the country’s power supplies as the government tries to plug a revenue shortfall while pledging to increase spending.
Delivering a review of the West African nation’s 2019 budget to lawmakers on Monday, Finance Minister Ken Ofori-Atta said Ghana will seek an immediate review of power-procurement deals that lifted the country’s installed capacity to almost double its current peak-demand needs of about 2,700 megawatts. Ghana is paying about 2.5 billion cedis ($463 million) per year for power that it doesn’t need and will pay as much as $850 million from 2020 for excess gas, he said.
“The situation in the energy sector is shocking the economy and creating a state of emergency” said Ofori-Atta. “We cannot allow this situation to continue.”
The government will seek to convert all its power-procurement deals with independent producers and gas suppliers to so-called take-and-pay contracts, said Ofori-Atta.
The measure is part of plans to cut certain expenses and increase revenue after Ghana recorded a budget deficit of 3.3% of gross domestic product in the first half of the year, against a target of 2.9% of GDP, according to a copy of Ofori-Atta’s speech. As a consequence, the outlook for the year has been revised to a shortfall of 4.5% of GDP, from an initial target of 4.2% of GDP and compared with 3.7% in 2018.
“This still remains responsibly below the 5%-ceiling we have legally set for ourselves, and we intend to honor it,” he said.
Investors are watching whether Ghana can stick to its fiscal-deficit targets with less than 17 months to go before the next general election. The country exited a extended credit-facility program with the International Monetary Fund that it entered into in 2015 after years of overspending.
Other Key Announcements:
- Economic-growth forecast lowered to 7.1%, from 7.6%, due to lower oil revenue.
- Ghana seeks to add 6.4 billion cedis in supplementary spending to initial estimate of 78.8 billion cedis.
- Country seeks to increase revenue through higher energy-sector levies, communication-service tax.
- Government to withdraw levy on luxury vehicles that was introduced last year.
The yield on Ghana’s dollar debt maturing in 2032 advanced 10 basis points to 7.85% by 5:05 p.m. in Accra. That’s almost in line with African peers whose Eurobond yields have risen eight basis points, according to the Standard Bank Africa ex-South Africa Sovereign Bond Yield Index.
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