## 1ghaea2026002

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### A. Gold production in Ghana
- Gold now accounts for more than half of total exports, up from just a fifth in 2021.
- Ghana is Africa’s leading gold producer; production split between Large-Scale Gold Mining (LSGM) and Artisanal and Small-Scale Gold Mining (ASGM).
- LSGM:
  - Output averaged between 2.5 and 3 million ounces annually for over a decade.
  - Fiscal revenue from mining fluctuated between 1 and 1.5 percent of GDP.
  - Mining fiscal regime reporting is incomplete and fragmented; reforms include a sliding scale for royalties in 2026 expected to significantly increase revenues.
- ASGM:
  - ASGM’s share did not exceed 10 percent until 2004; ASGM production grew rapidly and overtook LSGM production for the first time in 2025.
  - ASGM includes licensed, informal, and illegal operations; some ASGM activities are largely exempt from some or all forms of taxation applicable to large-scale miners.
  - Smuggling estimate: 229 tons of gold worth US$ 11.4 billion missing from official trade data between 2019 and 2024.
  - In 2023, the discrepancy between exports reported by Ghana and imports reported by the United Arab Emirates exceeded US$4 billion.
  - The government removed all taxation on the ASGM sector in 2025 by eliminating a 1.5 percent withholding tax on unprocessed precious minerals; the 2025 Minerals and Mining (Royalties) Regulation Act introduces a 2 percent royalty on ASGM production starting in March 2026 (unclear whether revenues have been collected so far).
  - Environmental and macroeconomic costs: extensive land degradation, loss of productive agricultural land (including cocoa), siltation and water contamination, increased flood and drought risks, and structural risks to agricultural productivity and long-term growth.
- Institutional response:
  - In 2025, the government created the Ghana Gold Board (GoldBod) to regulate the gold sector, promote responsible sourcing, generate FX, and support accumulation of gold reserves by the Bank of Ghana (BoG).
  - GoldBod was granted a monopsony on ASGM gold purchases, operating via a network of aggregators and traders.

### B. Domestic Gold Purchase Programme (DGPP): design, scale, and modalities
- Context and objectives:
  - Announced in 2021 amid declining reserve buffers, exchange rate pressures, and loss of market access in 2022.
  - Aimed to formalize ASGM flows, improve traceability, support reserve accumulation, procure fuel, and rebuild international reserves.
- Scale and outcomes:
  - DGPP scaled up to absorb virtually all ASGM gold production by 2025.
  - In 2025, the BoG purchased and exported around 104 tons of ASGM gold for US$10.9 billion (9.5 percent of GDP) and US$1.26 billion of gold bullion (around 12 percent of large-scale mine’s output).
  - Annual gold-related inflows increased from US$1.7 billion in 2023 to US$12.7 billion in 2025, including US$1.1 billion in net gains from gold bullion sales.
  - DGPP-related inflows drove an eightfold increase in gross international reserves since the beginning of the ECF-supported program to US$11.9 billion (about 4 months of imports) by end-2025—outperforming program goals.
- DGPP modalities (umbrella for BoG gold-related operations):
  - Bullion purchases: refined into bullion abroad in LBMA-certified refineries and held in external vaults; counted as foreign reserves.
  - ASGM doré purchases: sourced domestically through GoldBod; exported through private off-takers; under Gold‑for‑Reserves (G4R) proceeds placed in foreign international reserves.
  - Gold‑for‑Oil (G4O): variant of G4R where physical gold or proceeds were used to purchase refined oil products; G4O discontinued in May 2025.
- By end-2024 emphasis shifted from reserve accumulation toward FX sales to domestic banks; GoldBod handled most sourcing operations.

### C. DGPP’s role in FX flows and exchange rate dynamics
- BoG FX sales and market impact:
  - BoG conducted FX sales of US$1 billion in 2023 and sold US$10.6 billion in 2025, equivalent to 9.2 percent of GDP.
  - The US$10.6 billion equals 51 percent of total inflows in 2025, or 92 percent of DGPP-related inflows (excluding one-off bullion sales).
  - Scaling up of FX sales improved FX market liquidity and coincided with a 41 percent nominal appreciation of the cedi against the dollar in 2025.
- BoG’s new FX operations framework:
  - Implemented in November 2025 (with IMF TA).
  - Intermediates inflows exceeding regular FX outflows, reserve needs, and intervention budgets to private banks via pre-announced monthly FX auctions—improving transparency and predictability versus prior ad hoc auctions.

### D. DGPP costs, losses, and Bank of Ghana balance-sheet impact
- DGPP-generated losses:
  - 2024 losses: almost US$400 million (0.5 percent of GDP); one third related to G4O.
  - 2025 losses: over US$1.7 billion (1.5 percent of GDP), almost entirely related to G4R doré purchases; this represented a loss of 17 percent of the value of doré gold sold by the BoG.
  - Loss components: service and assay fees paid to GoldBod, discounts on gold sold to off-takers (exporters), and exchange rate losses from the spread between the forex bureau rate paid to purchase gold and the cedi reference rate used for BoG accounting.
  - Some accounting losses reflect valuation effects rather than cash economic costs, but they weaken the BoG balance sheet and imply transfers to recipients of FX at the reference rate.
  - Additional DGPP-related operational losses include G4O-related claims on BOST that were partly written off in 2024.
  - Losses do not include the cost of sterilizing the reserves accumulated using the DGPP.
- BoG equity:
  - BoG’s negative equity was 6.7 percent of GDP at end-2025.

### E. Transfer of DGPP, fiscal and operational arrangements (2026)
- Institutional change as of July 1, 2026:
  - DGPP activities will be fully transferred to GoldBod; BoG will fully exit DGPP and no longer be exposed to its quasi-fiscal financial risks.
  - BoG will continue to play a role as GoldBod’s fiscal agent, and as a recipient of monetary gold for its reserves.
  - All costs of the DGPP will be transparently assumed by the government.
- Cost targets and progress:
  - Expected costs brought down to 5 percent of gold purchased.
  - Progress in 2026Q1: costs declined from 14.5 percent (2025) to 11.4 percent (2026Q1).
  - Cost reductions achieved notably through halving of assay fees, service charges and other logistical costs.
  - Spread between the forex bureau rate and the reference rate significantly reduced in 2026Q2.

### F. GANRAP reserve-accumulation plan and trade-offs
- GANRAP target:
  - Domestic gold purchases primary instrument to reach 15 months of import coverage by 2028.
  - Fund-assessed reserve adequacy: 6 months of import coverage.
- Plan features:
  - BoG to purchase twice as much LSGM gold as in the recent past, targeting 30 percent of total output at a discount of 0.55 percent relative to international prices.
  - Refining domestically and validating at a LBMA-certified South African refinery.
  - Slightly more ASGM gold purchases over the next three years than in 2025.
  - Licensing a second aggregator to supplement Bawa-Rock (Bawa-Rock supplied over 60 percent of ASGM gold exported in 2025).
- Trade-offs and costs:
  - Significant opportunity costs and sterilization costs.
  - At 15 months of imports, the cost of open market operations alone would likely reach 3 percent of GDP (from 1 percent in 2025).

### G. Responsible sourcing and operational controls for GoldBod
- Commitments and standards:
  - Align sourcing with OECD Due Diligence Guidance and LBMA Responsible Gold Guidance.
  - Due diligence to exclude gold linked to human rights abuses, forced or child labor, bribery, tax evasion, money laundering, terrorist financing, environmental violations, labor-law breaches.
  - Assess suppliers’ and customers’ ESG practices: environmental, health, labor, pollution-control, hazardous-chemical-management, community-relations, fair-labor practices.
- Operationalization measures recommended:
  - stronger KYC/AML-CFT controls;
  - risk-based supplier onboarding;
  - traceability from mine site to export;
  - transparent reporting on gold purchases, costs, and operations.
- Expected benefits if credibly implemented:
  - reduce smuggling and illicit financial flows;
  - improve transparency and auditability of ASGM gold flows;
  - limit environmental damage from galamsey;
  - progressively integrate Ghana’s ASGM sector into responsible international gold supply chains.

### H. Financial‑sector resilience to gold price shocks: scenarios and key results
- Scenario design:
  - Moderate scenario: 30 percent decline from USD 4,151/oz at end-2025 to USD 2,906/oz by end-December 2026.
  - Severe scenario: 45 percent decline to USD 2,283/oz.
- Macro-financial transmission (examples of modeled responses):
  - A 30 percent decline reduces FX inflows, leading to nominal exchange rate depreciation of about 1.70–2.45 percentage points and CPI inflation increase of roughly 0.83–1.57 percentage points.
  - BoG tightens monetary policy moderately.
  - Eurobond yields widen by about 150–200 basis points.
  - Tighter financial conditions and weaker activity raise mining-sector NPLs and reduce real GDP growth.
- Direct numerical mappings and elasticities (selected):
  - Gold exports elasticity = 1.0; immediate declines of -15%, -30%, -45% for 15 percent, 30 percent, 45 percent shocks respectively.
  - Fiscal revenues (Royalties & mining CIT) elasticity = 0.65-1.0; impacts of -0.50%, -0.8-1.0% GDP, -1.5% GDP with lags 9-12 months.
  - Exchange rate (GHS/USD) ε = -0.25 to -0.37; changes of +0.85 to 1.23 pp, +1.70 to 2.45 pp, +2.55 to 3.70 pp over 9-12 months for 15%, 30%, 45% shocks respectively.
  - Inflation (CPI) ERPT = 0.12 to 0.23 pp; impacts of +0.42 to 0.79 pp, +0.83 to 1.57 pp, +1.25 to 2.36 pp over 9-12 months.
  - Sovereign risk: +150-200 bps CDS within 1-6 months under stress.
- Example macro path for −30% gold price shock (deviations from baseline, quarterly Q0–Q6):
  - Gold price (% deviation): 0, -7.5%, -15.0%, -22.5%, -30%, -30%, -30%
  - Depreciation: GHS/USD (pp above baseline): 0, 0.13, 0.74, 1.7, 2.45, 2.21, 1.71
  - CPI inflation (pp above baseline): 0, -0.025, 0.24, 0.83, 1.57, 1.83, 1.93
  - Real GDP (pp above baseline): 0, 0.48, 0.02, -0.73, -1.55, -1.9, -2.11
  - Policy rate (bps above baseline): 0, 20, 59, 107, 161, 172, 178
  - Private Sector Credit (% Deviation): 0, -0.12%, -0.09%, -0.12%, -0.35%, -0.74%, -1.24%

### I. Banking‑sector stress testing results and vulnerabilities
- Coverage and exposures:
  - 23 banks covering about 67 percent of financial sector assets.
  - As of December 2025, loans to the mining sector = about 5.3 percent of total loan portfolio.
  - Mining sector NPL ratio = 10.4 percent (well below industry average 18.1 percent); mining accounts for 2.88 percent of industry NPLs.
- Aggregate resilience:
  - System-wide capital adequacy ratios remain comfortably above the 13-percent regulatory minimum across scenarios.
  - Increase in NPLs moderate in aggregate.
- Heterogeneity and vulnerabilities:
  - Foreign-owned banks: mining and quarrying loans = 6.6 percent of gross loans; capital adequacy ratio = 20.1 percent as of December 2025.
  - Domestic private banks: mining exposures = 2.4–2.6 percent; capital adequacy ratio = 5.7 percent (below 13 percent regulatory minimum) — most vulnerable.
  - Domestic state banks adequately capitalized in aggregate; concentration risk: default of largest gold-related obligor would leave one state bank about 0.6 percentage point below regulatory minimum.
  - Industry-wide capital adequacy ratio ≈ 17.5 percent and broadly unchanged across scenarios, but understates dispersion.
- Key table excerpts (selected):
  - Baseline: NPL 18.9, CAR 17.5
  - Moderate: NPL 19.9/20.0/20.0, CAR 17.5/17.1/17.1
  - Adverse: NPL 20.2/21.1/19.6, CAR 16.8/16.7/17.9*
- Caveats:
  - Results sensitive to interest-rate pass-through, funding-cost increases, mark-to-market losses on fixed-rate government securities, and second-round credit-quality effects.

### J. Central bank balance‑sheet stress testing and sensitivities
- Stylized baseline balance-sheet (unaudited, time = 0, GHS units as reported):
  - Net Foreign Assets B_f_0 = 100,791.17
  - Net Domestic Assets B_d_0 = 53,966.98
  - CiC+ Required Reserves (Non-Interest Bearing) C_0 = 154,116.46
  - Excess Reserves (interest-bearing liabilities) R_0 = 99,163.05
  - Equity E_0 = -98,521.36 (without gold -95,723.59)
  - Nominal GDP NGDP_0 = 1,434,180.00
- Assigned quarterly parameters:
  - NFA Yield y_f = 0.7%
  - NDA Yield y_d = 4.0%
  - Nominal GDP growth g_n = 3.3%
  - FX depreciation rate g_fx = 1.8%
  - Domestic policy rate after spread i_d = 3.0%
  - NFA yield in domestic currency r_fx = 2.5%
  - Operational Cost (Non-OMO) = 2,797.77
- Balance-sheet outcomes and sensitivities:
  - Baseline: equity as share of GDP improves from approximately -6.9 percent of GDP to around -0.35 percent of GDP over a 20-quarter horizon, assuming gold share of reserves = 20 percent.
  - Under 30 percent gold price shock, equity-to-GDP gap relative to baseline ranges from approximately 0.57 percentage points of GDP in Q1 to 0.47 percentage points over subsequent quarters; impact dissipates over forecast horizon.
  - Sensitivity to gold share of reserves (Equity in percent of GDP):
    - Gold share 20%: Baseline -6.9; 30% price shock -7.4; 45% price shock -7.7
    - Gold share 30%: Baseline -6.9; 30% price shock -7.7; 45% price shock -8.2
    - Gold share 40%: Baseline -6.9; 30% price shock -8.0; 45% price shock -8.6
    - Gold share 50%: Baseline -6.9; 30% price shock -8.3; 45% price shock -9.0
- Stock of gold assets and NFA under shocks:
  - Baseline: Gold Price (USD/Oz) 4,151; Stock of Gold Assets (GHS) 27,150; NFA (GHS) 100,791
  - 30% Price Shock: Gold Price 2,906; Stock of Gold Assets 19,005; NFA 92,646
  - 45% Price Shock: Gold Price 2,283; Stock of Gold Assets 14,933; NFA 88,574
- Macroeconomic parameters across scenarios (selected):
  - Depreciation: Baseline 7.0; 30% Price Shock 9.5; 45% Price Shock 10.7
  - Nominal GDP Growth Rate: Baseline 13.0; 30% Price Shock 13.5; 45% Price Shock 13.7
  - Domestic Policy Rate: Baseline 12.0; 30% Price Shock 13.6; 45% Price Shock 14.4
- Timing to restoration of positive equity:
  - Without shock, solvency restored around the twenty-second quarter at 20 percent gold share and the twenty-third quarter at 50 percent.
  - Under a 30 percent price shock, return to positive equity shifts from the twenty-third to the twenty-seventh quarter as gold share rises from 20 to 50 percent (delay ≈ one year).

### K. Key conclusions on resilience and policy recommendations
- Aggregate conclusions:
  - DGPP achieved rapid reserve accumulation and contributed to macroeconomic stabilization while generating large and concentrated BoG losses.
  - Banking system remains broadly resilient at the aggregate level under moderate and severe shocks, although vulnerabilities persist among weaker institutions.
  - Gold price shocks have a more pronounced near-term impact on BoG equity; higher gold share in reserves amplifies exposure.
- Policy priorities (selected):
  - Banking sector:
    - Maintain strong capital buffers.
    - Complete resolution of remaining weak banks.
    - Focus supervisory attention on vulnerable banks rather than system averages alone.
  - Central bank and fiscal/financial authorities:
    - Build resilience to commodity price volatility; incorporate commodity‑risk buffers into recapitalization strategies.
    - Continue monetary policy normalization to reduce OMO costs and strengthen baseline equity dynamics.
    - Incorporate commodity risk into balance‑sheet planning given amplification effects of higher gold reserve shares.
  - Broader macro‑financial policy:
    - Proactive macro‑financial risk management in a commodity‑dependent economy.
    - Complete financial sector reforms under the GFSSS and strengthen crisis preparedness.

### L. Energy sector financial position and reform agenda (ECF‑supported program)
- Sector structure and value chain highlights:
  - Thermal generators (natural gas backbone; liquid fuels backup) and hydropower.
  - Upstream gas: TEN, Jubilee, Sankofa; imports from Nigeria via WAGP.
  - Midstream: Atuabo plant (GNGC); generation concentrated in Tema and Takoradi.
  - Generation: state-owned VRA, Bui Power Authority (BPA), and IPPs (IPPs account for about 44 percent of installed capacity).
  - Transmission: GRIDCo; distribution: ECG (south/central), NEDCo (north).
  - Tariffs set by PURC; a portion of electricity exported regionally.
- Cash Waterfall Mechanism (CWM):
  - Introduced in 2020, revised in 2023; governs pooled revenue allocation with fixed priority sequence; compliance monitored via independent validation.
  - Does not eliminate financing gaps; adherence has been inconsistent.
- Key financial metrics and shortfalls:
  - ECG declared revenues to the CWM in 2024: GH¢10.4 billion vs validated GH¢15.5 billion — gap GH¢5.1 billion.
  - ECG collection rate in 2024: approximately 86 percent.
  - MDAs’ unpaid electricity bills ≈ 16 percent of total sector outstanding payables at end-2025.
  - A World Bank–backed letter of credit (Eni/OCTP) of US$500 million at its peak accounted for a substantial share of total sector payables.
- Government financial exposures:
  - Structural reasons: direct ownership, limited ringfencing, long-term PPAs with fixed payment obligations.
  - Transmission: weak collection → CWM allocation shortfalls → unpaid obligations accumulate as arrears → impaired operations and higher generation costs → government absorbs shortfalls via transfers/credit notes.
- Cost structure and exchange-rate exposure:
  - Domestic gas pricing: Jubilee and TEN associated gas ≈ US$2.90/MMBtu administered; Sankofa nominally contracted at ≈ US$8.72/MMBtu (net cost to Ghana < US$4.5/MMBtu after GNPC adjustments); WAGP contracted at ≈ US$8.75/MMBtu and intermittent.
  - Exchange rate (GHS/USD) movements are the fastest-acting source of cost pressure because sector costs are generally USD-denominated while revenues are in cedis.
- Structural gaps (2024) driving imbalances:
  - Tariff gap, distribution gap, collection gap — multiplicative effects that sustain financing shortfalls.
- ECF-supported program progress in 2025:
  - Resumption of tariff adjustments; strengthened CWM implementation; steps toward arrears reduction.
  - Tariffs increased by about 40 percent since March 2025 cumulatively.
  - Improved macro conditions and reduced reliance on liquid fuels narrowed the annual shortfall from US$1.6 billion (1.4 percent of GDP) in 2024 to US$1.4 billion (1.2 percent of GDP) in 2025.
  - Outstanding payables peaked at about US$2.2 billion (1.9 percent of GDP) in early 2025 and declined to about US$1.7 billion at end-2025 (1.5 percent of GDP).
  - ECG arrears: peak US$3.5 billion in 2025Q2, declined to US$2.8 billion at end-2025.
- Policy roadmap (sequenced priorities):
  - Near term: ensure consistent tariff adjustment via AAF; strengthen PURC operational independence; strict enforcement of the CWM; deliver a credible and fully financed arrears resolution strategy.
  - Medium term: reduce distribution losses (accelerate smart meter rollout, strengthen energy accounting), improve revenue collection (enforce payments, expand prepayment, structured repayment plans), advance PSP in distribution with Cabinet approval of a commercial model.
  - Structural: institutionalize tariff-setting and regulatory processes; timely publication of audited financial statements; strengthened disclosure of contingent liabilities; competitive procurement for new generation capacity.
- Expected outcomes of steadfast implementation:
  - A financially sustainable sector with a creditworthy off-taker (ECG), predictable tariff adjustments, disciplined procurement, increased domestic gas supply stability (OCTP supplies approximately 70 percent of domestic gas for power; July 2025 expansion to 270 MMcfd and a US$1.5 billion investment commitment by ENI and OCTP partners; Jubilee and TEN partners committed approximately US$2 billion).

*Prepared by IMF staff (selected excerpts from the provided IMF PDF chapter).*

### 1. Trade Balance ___________________________________________________________________________ 4

### 1. Trade Balance

### A. Gold Production in Ghana
- Gold is the dominant driver of Ghana’s external position; it now accounts for more than half of total exports, up from just a fifth in 2021.
- Ghana is Africa’s leading gold producer and a major global producer; production is split between Large-Scale Gold Mining (LSGM) and Artisanal and Small-Scale Gold Mining (ASGM).
- LSGM:
  - Output averaged between 2.5 and 3 million ounces annually for over a decade.
  - Fiscal revenue from mining has fluctuated between 1 and 1.5 percent of GDP.
  - Mining fiscal regime is less transparent than the oil & gas sector; reporting is incomplete and fragmented.
  - Reforms underway include a sliding scale for royalties in 2026, expected to significantly increase revenues.
- ASGM:
  - ASGM’s share of total production did not exceed 10 percent until 2004; ASGM production grew rapidly and overtook LSGM production for the first time in 2025.
  - ASGM includes licensed, informal, and illegal operations; some ASGM activities are largely exempt from some or all forms of taxation applicable to large-scale miners.
  - Smuggling estimate: 229 tons of gold worth US$ 11.4 billion missing from official trade data between 2019 and 2024.
  - In 2023, the discrepancy between exports reported by Ghana and imports reported by the United Arab Emirates exceeded US$4 billion.
  - The government removed all taxation on the ASGM sector in 2025 by eliminating a 1.5 percent withholding tax on unprocessed precious minerals; the 2025 Minerals and Mining (Royalties) Regulation Act introduces a 2 percent royalty on ASGM production starting in March 2026 (it is unclear whether revenues have been collected so far).
  - Environmental and macroeconomic costs from ASGM: extensive land degradation, loss of productive agricultural land (including cocoa), siltation and water contamination raising costs for the Ghana Water Company, increased flood and drought risks, and structural risks to agricultural productivity and long-term growth.
- Institutional response:
  - In 2025, the government created the Ghana Gold Board (GoldBod) to regulate the gold sector, promote responsible sourcing, generate FX, and support accumulation of gold reserves by the Bank of Ghana (BoG).
  - GoldBod was granted a monopsony on ASGM gold purchases, operating via a network of aggregators and traders.

### B. The Domestic Gold Purchase Programme (DGPP): Design and Scale
- Context:
  - DGPP announced in 2021 amid declining reserve buffers, exchange rate pressures, and loss of market access in 2022.
  - DGPP aimed to formalize ASGM flows, improve traceability, support reserve accumulation, procure fuel, and rebuild international reserves.
- Scale and outcomes:
  - The DGPP rapidly scaled up to absorb virtually all ASGM gold production by 2025.
  - In 2025, the BoG purchased and exported around 104 tons of ASGM gold for US$10.9 billion (9.5 percent of GDP) and US$1.26 billion of gold bullion (around 12 percent of large-scale mine’s output).
  - Annual gold-related inflows increased from US$1.7 billion in 2023 to US$12.7 billion in 2025, including US$1.1 billion in net gains from gold bullion sales.
  - DGPP-related inflows drove an eightfold increase in gross international reserves since the beginning of the ECF-supported program to US$11.9 billion (about 4 months of imports) by end-2025—outperforming program goals.
- DGPP modalities (umbrella for BoG gold-related operations):
  - Bullion purchases: refined into bullion abroad in LBMA-certified refineries and held in external vaults; counted as foreign reserves.
  - ASGM doré purchases: sourced domestically through GoldBod; exported through private off-takers; under Gold‑for‑Reserves (G4R) proceeds placed in foreign international reserves.
  - Gold‑for‑Oil (G4O): variant of G4R where physical gold or proceeds were used to purchase refined oil products; G4O was discontinued in May 2025.
- By end-2024 the DGPP emphasis shifted from reserve accumulation toward FX sales to domestic banks; GoldBod handled most sourcing operations.

### C. DGPP’s Role in FX Flows and Exchange Rate Dynamics
- BoG FX sales:
  - BoG conducted FX sales of US$1 billion in 2023.
  - BoG sold US$10.6 billion in 2025, equivalent to 9.2 percent of GDP.
  - The US$10.6 billion in FX sales equals 51 percent of total inflows in 2025, or 92 percent of DGPP-related inflows (excluding one-off bullion sales).
  - The scaling up of FX sales improved FX market liquidity and coincided with a 41 percent nominal appreciation of the cedi against the dollar in 2025.
- BoG’s new FX operations framework:
  - Implemented in November 2025 (with IMF TA).
  - Framework intermediates inflows exceeding regular FX outflows, reserve needs, and intervention budgets to private banks via pre-announced monthly FX auctions—improving transparency and predictability versus prior ad hoc auctions.

### D. Costs, Losses, and BoG Balance‑Sheet Impact
- DGPP-generated losses:
  - 2024 losses: almost US$400 million (0.5 percent of GDP); one third related to G4O.
  - 2025 losses: over US$1.7 billion (1.5 percent of GDP), almost entirely related to G4R doré purchases; this represented a loss of 17 percent of the value of doré gold sold by the BoG.
  - Components of losses: service and assay fees paid to GoldBod, discounts on gold sold to off-takers (exporters), and exchange rate losses from the spread between the forex bureau rate paid to purchase gold and the cedi reference rate used for BoG accounting.
  - Some accounting losses reflect valuation effects rather than cash economic costs, but they weaken the BoG balance sheet and imply transfers to recipients of FX at the reference rate.
  - Additional DGPP-related operational losses include G4O-related claims on BOST that were partly written off in 2024.
  - Losses do not include the cost of sterilizing the reserves accumulated using the DGPP.
- BoG equity:
  - BoG’s negative equity was 6.7 percent of GDP at end-2025.

### E. Broader Implications and Observations
- DGPP achieved rapid reserve accumulation and contributed to macroeconomic stabilization while generating large and concentrated BoG losses.
- The DGPP made the BoG intermediary to virtually all recorded ASGM export proceeds by 2025, with GoldBod playing a central sourcing role.
- Policy and operational trade-offs evident:
  - Rapid formalization and FX generation versus fiscal and central-bank balance‑sheet costs.
  - Improvements in FX market liquidity and cedi appreciation versus banking of valuation and accounting losses at the central bank.
- Environmental and structural risks from ASGM expansion pose significant macroeconomic and fiscal concerns if not addressed (agricultural land loss, water contamination, higher public costs, and climate resilience impacts).

*Prepared by Guillaume Nolin (AFR); July 10, 2026 — Selected Issues Paper excerpt on the Bank of Ghana’s Domestic Gold Purchase Programme (DGPP).*

### 14.      DGPP activities will be fully transferred to the GoldBod as of July 1, 2026. Under a

### 14.      DGPP activities will be fully transferred to the GoldBod as of July 1, 2026. Under a

### Transfer of DGPP, fiscal and operational arrangements
- The BoG will fully exit the DGPP and will no longer be exposed to its quasi-fiscal financial risks in the future.
- The BoG will continue to play a role as GoldBod’s fiscal agent, and as a recipient of monetary gold for its reserves.
- All costs of the DGPP will be transparently assumed by the government.
- These costs are expected to be brought down to 5 percent of gold purchased.
- Progress in 2026Q1: costs declined from 14.5 percent (2025) to 11.4 percent (2026Q1).
- Cost reductions were achieved notably through the halving of assay fees, service charges and other logistical costs.
- The spread between the forex bureau rate and the reference rate has also been reduced significantly in 2026Q2.

### GANRAP reserve-accumulation plan and macro-financial implications
- Under the Ghana Accelerated National Reserve Accumulation Policy (GANRAP), domestic gold purchases will be the primary instrument to accumulate reserves to reach 15 months of import coverage by 2028.
- This target (15 months) is significantly beyond Fund assessments of reserve adequacy requirements, which are estimated at 6 months of import coverage.
- Plan features:
  - BoG to purchase twice as much LSGM gold as in the recent past, targeting 30 percent of total output at a discount of 0.55 percent relative to international prices.
  - Refining domestically and validating at a LBMA-certified South African refinery.
  - Slightly more ASGM gold purchases over the next three years than in 2025.
  - Licensing a second aggregator to supplement Bawa-Rock (Bawa-Rock supplied over 60 percent of ASGM gold exported in 2025).
- Trade-offs and costs:
  - Significant opportunity costs and sterilization costs.
  - At 15 months of imports, the cost of open market operations alone would likely reach 3 percent of GDP (from 1 percent in 2025).

### Responsible sourcing and operational controls for GoldBod
- GoldBod committed to align sourcing with internationally recognized standards, including the OECD Due Diligence Guidance and the LBMA Responsible Gold Guidance.
- Commitments include due diligence to exclude gold linked to:
  - human rights abuses, forced or child labor, bribery, tax evasion, money laundering, terrorist financing, environmental violations, labor-law breaches.
- GoldBod committed to assess suppliers’ and customers’ ESG practices, including:
  - environmental, health, labor, pollution-control, hazardous-chemical-management, community-relations, fair-labor practices.
- Operationalization measures recommended:
  - stronger KYC/AML-CFT controls,
  - risk-based supplier onboarding,
  - traceability from mine site to export,
  - transparent reporting on gold purchases, costs, and operations.
- If credibly implemented, these reforms would:
  - reduce smuggling and illicit financial flows,
  - improve transparency and auditability of ASGM gold flows,
  - limit environmental damage from galamsey,
  - progressively integrate Ghana’s ASGM sector into responsible international gold supply chains.

### Financial-sector resilience to a severe gold price shock — overview
- The paper assesses resilience of Ghana’s banking system and the Bank of Ghana (BoG) to a severe and persistent decline in gold prices, using two scenarios (moderate and severe) and joint stress tests of banking and central bank balance sheets.
- Findings:
  - The banking system remains broadly resilient at the aggregate level under both moderate and severe shocks, although vulnerabilities persist among weaker institutions.
  - Gold price shocks have a more pronounced near-term impact on BoG equity.
- Policy priorities highlighted:
  - maintaining strong bank capital buffers,
  - completing the resolution of remaining weak banks,
  - incorporating commodity risks into BoG recapitalization planning.

### Banking sector structure, metrics, and vulnerabilities
- Financial system size and composition:
  - Total financial sector assets rose from GHS 536.8 billion (45.6 percent of GDP) at end-2024 to an estimated GHS 644 billion (46.9 percent of GDP) at end-2025.
  - Banks account for about 67.4 percent of total system assets—equivalent to 31.6 percent of GDP.
- Ownership concentration:
  - Foreign-owned banks held about 40.1 percent of financial sector assets in 2025.
  - Domestic private banks: 12.1 percent.
  - Government-owned banks: 15.2 percent.
  - The five largest banks control about 45 percent of total banking assets.
- Central bank balance-sheet relevance:
  - Central bank assets amount to about 16.3 percent of GDP at end-2025.
- Capitalization and balance-sheet indicators:
  - System-wide capital adequacy ratio rose to about 22 percent by March 2026, from around 14 percent at end-2024.
  - Total banking assets reached GHS 446.9 billion by end-2025.
  - Balance sheets remain heavily tilted toward central bank and government instruments—together accounting for about 40 percent of total banking assets.
- Credit intermediation and asset quality:
  - Average loan-to-deposit ratio declined from about 55 percent in 2019 to around 29 percent by end-2025.
  - Private sector credit by banks was estimated at 7.4 percent of GDP at end-2025.
  - Industry NPL ratio peaked at 26.7 percent in March 2024 and declined to 18.1 percent (March 2026), but remains elevated.
  - Loan impairments/interest in suspense: -4 (percent of total banking assets) across reported periods in Table 2.

### Severe gold price shock: scenario design and transmission channels
- Scenario calibrations:
  - Moderate scenario: a 30 percent decline from USD 4,151/oz at end-2025 to USD 2,906/oz by end-December 2026.
  - Severe scenario: a 45 percent decline to USD 2,283/oz.
- Transmission mechanisms and modeled responses:
  - A 30 percent decline reduces foreign exchange inflows, leading to a nominal exchange rate depreciation of about 1.70–2.45 percentage points and an increase in CPI inflation of roughly 0.83–1.57 percentage points.
  - BoG tightens monetary policy moderately.
  - Sovereign risk intensifies, with Eurobond yields widening by about 150–200 basis points.
  - Tighter financial conditions and weaker activity raise mining-sector NPLs and reduce overall real GDP growth.
  - Macro-financial paths were generated using the BoG’s restricted VaR (vector autogression) approach.
- Note on exchange-rate estimates: they are empirical impulse responses from a VAR model and specific to historical relationships and horizons captured in the sample.

### Key figures and metrics (as reported)
- DGPP cost targets and progress:
  - Target: 5 percent of gold purchased.
  - 2025 DGPP cost: 14.5 percent.
  - 2026Q1 DGPP cost: 11.4 percent.
- Reserve accumulation and targets:
  - GANRAP target: 15 months of import coverage by 2028.
  - Fund-assessed reserve adequacy: 6 months of import coverage.
- Gold purchase program parameters:
  - Target LSGM share: 30 percent of total output.
  - Discount relative to international prices: 0.55 percent.
  - BoG prior G4R purchases: up to 20 percent of volumes (often significantly less).
  - Bawa-Rock share of ASGM gold exported in 2025: over 60 percent.
- Sterilization/open market operation cost projections:
  - Cost at 15 months: likely reach 3 percent of GDP (from 1 percent in 2025).
- Financial system aggregates:
  - Total financial sector assets: GHS 536.8 billion (45.6 percent of GDP) at end-2024; estimated GHS 644 billion (46.9 percent of GDP) at end-2025.
  - Banks share of system assets: 67.4 percent (31.6 percent of GDP).
  - Central bank assets: about 16.3 percent of GDP at end-2025.
  - Total banking assets: GHS 446.9 billion by end-2025.
  - System-wide capital adequacy ratio: about 22 percent by March 2026 (from around 14 percent at end-2024).
  - Private sector credit by banks: 7.4 percent of GDP at end-2025.
  - NPL ratio: 26.7 percent (peak, March 2024); 18.1 percent (March 2026).
- Stress-test price levels:
  - End-2025 gold price baseline: USD 4,151/oz.
  - 30 percent shock target price by end-December 2026: USD 2,906/oz.
  - 45 percent shock target price by end-December 2026: USD 2,283/oz.
- Memoranda and other figures cited in tables and notes are drawn from BoG and IMF staff calculations and authorities’ data.

*Italic source attribution: IMF staff summary of chapter content from the provided IMF PDF excerpt.*

### 10.45 per U.S. dollar) are economically significant. A 15% shock, which could increase the exchange rate by 1.23

### 1ghaea2026002 - 10.45 per U.S. dollar) are economically significant. A 15% shock, which could increase the exchange rate by 1.23

### Gold price shocks and macro-financial transmission
- A 15% gold price shock could increase the exchange rate by 1.23 percentage points; implies exchange rate at end-December 2025 could depreciate by 11.8% (1.23/10.45 - 1).
- A 45% shock increasing the exchange rate by 3.7 percentage points implies exchange rate could depreciate by 35.4% (3.7/10.45-1).
- Figure 2 scenarios shown: Baseline; 30% Price Shock (5% Probability); 45% Price Shock (1 percent probability).
- Table 3 summary of channels and impacts (lags in months unless stated):
  - Gold Exports: elasticity 1.0 (unit-elastic); immediate declines of -15%, -30%, -45% for 15 percent, 30 percent, 45 percent shocks respectively.
  - Fiscal Revenues (Royalties & mining CIT): elasticity 0.65-1.0; impacts of -0.50%, -0.8-1.0% GDP, -1.5% GDP with lags 9-12 months.
  - Exchange Rate (GHS/USD spot rate) ε = -0.25 to -0.37; changes of +0.85 to 1.23pp, +1.70 to 2.45 pp, +2.55 to 3.70pp over 9-12 months for 15%, 30%, 45% shocks respectively.
  - Inflation (CPI) ERPT = 0.12 to 0.23 pp; impacts of +0.42 to 0.79pp, +0.83 to 1.57 pp, +1.25 to 2.36pp over 9-12 months.
  - Monetary Policy (Policy Rate) impacts of 16 to 24 bps; +0.54 to 0.80 pp; +107 to 161pp; +161 to 241pp over 9-12 months.
  - Financial Conditions (Credit to Private Sector) elasticities -0.02% to -0.05%; deviations -0.18% to -0.37%, -0.35% to -0.74%, -0.53% to -1.10% over 12-15 months.
  - Sovereign Risk (CDS spreads; Eurobond yields): correlated with fiscal gap widening; +150-200bps CDS within 1-6 months under stress.
  - Real GDP Growth (direct effect of gold sector): impacts range -0.11 to -0.23 pp (15%), -0.37 to -0.78pp (30%), -0.73 to -1.55pp (45%) with lags 9-12 months; extending to -1.10 to -2.33pp in longer horizon figures.

- Macro-Financial Transmission Path for −30% Gold Price Shock (deviation from baseline, quarterly Q0–Q6):
  - Gold price (% deviation): 0, -7.5%, -15.0%, -22.5%, -30%, -30%, -30%
  - Depreciation: GHS/USD (pp above baseline): 0, 0.13, 0.74, 1.7, 2.45, 2.21, 1.71
  - CPI inflation (pp above baseline): 0, -0.025, 0.24, 0.83, 1.57, 1.83, 1.93
  - Real GDP (pp above baseline): 0, 0.48, 0.02, -0.73, -1.55, -1.9, -2.11
  - Policy rate (bps above baseline): 0, 20, 59, 107, 161, 172, 178
  - Private Sector Credit (% Deviation): 0, -0.12%, -0.09%, -0.12%, -0.35%, -0.74%, -1.24%

### Banking‑sector stress testing results
- Coverage: 23 banks accounting for about 67 percent of financial sector assets; uses BoG stress‑testing infrastructure.
- Direct exposure:
  - As of December 2025, loans to the mining sector = about 5.3 percent of total loan portfolio.
  - Mining sector: 2.88 percent of industry NPLs; NPL ratio = 10.4 percent (well below industry average 18.1 percent).
- Transmission: direct credit risk limited; main impact via indirect macro-financial channels—credit risk, market risk (FX, sovereign, interest rate), and net interest income.
- Aggregate resilience:
  - System-wide capital adequacy ratios remain comfortably above the 13-percent regulatory minimum across scenarios.
  - Increase in NPLs remains moderate relative to baseline in aggregate.
- Heterogeneity and vulnerabilities:
  - Foreign banks: mining and quarrying loans = 6.6 percent of gross loans; capital adequacy ratio = 20.1 percent as of December 2025.
  - Domestic banks: mining exposures = 2.4–2.6 percent; domestic private banks capital adequacy ratio = 5.7 percent (below 13 percent regulatory minimum) — most vulnerable.
  - Domestic state banks adequately capitalized in aggregate; concentration risk: default of largest gold-related obligor would leave one state bank about 0.6 percentage point below regulatory minimum.
  - Industry-wide capital adequacy ratio ≈ 17.5 percent and broadly unchanged across scenarios, but understates dispersion.
- Scenario mechanics and caveats:
  - Under the adverse scenario, higher net interest income partially offsets other adverse effects; aggregate capital ratios do not deteriorate further than under the moderate scenario.
  - This result is sensitive to interest-rate pass-through assumptions and does not fully capture funding-cost increases, mark-to-market losses on fixed-rate government securities, or second-round credit-quality effects.

- Key table outcomes (Table 4 excerpts):
  - NPLs and CAR across scenarios (selected figures):
    - Baseline: NPL 18.9, CAR 17.5
    - Moderate: NPL 19.9/20.0/20.0 (table shows variants), CAR 17.5/17.1/17.1
    - Adverse: NPL 20.2/21.1/19.6, CAR 16.8/16.7/17.9*
  - Note: Net interest income offset net impact from NPL increase, FX effects and revaluation of government bonds.

### Central bank balance‑sheet stress testing
- Scenarios: baseline; moderate scenario anchored on a 30 percent decline in gold prices from end-2025 levels; severe scenario with a 45 percent decline in gold prices.
- Stylized equity model decomposes BoG balance sheet into net foreign assets (NFA), net domestic assets (NDA), reserve money (RM); shareholders' equity (SE) derived as residual.
- Baseline balance-sheet snapshots (unaudited stylized at time = 0):
  - Net Foreign Assets B_f_0 = 100,791.17
  - Net Domestic Assets B_d_0 = 53,966.98
  - CiC+ Required Reserves (Non-Interest Bearing) C_0 = 154,116.46
  - Excess Reserves (interest-bearing liabilities) R_0 = 99,163.05
  - Equity E_0 = -98,521.36 (without gold -95,723.59)
  - Nominal GDP NGDP_0 = 1,434,180.00
- Assigned interest rates and parameters (quarterly definitions/values):
  - NFA Yield y_f = 0.7%
  - NDA Yield y_d = 4.0%
  - Nominal GDP growth g_n = 3.3%
  - FX depreciation rate g_fx = 1.8%
  - Domestic policy rate after spread (=interest rate assigned to excess reserves) i_d = 3.0%
  - NFA yield in domestic currency r_fx = 2.5%
  - Operational Cost (Non-OMO) = 2,797.77
- Direct and indirect channels affecting BoG equity:
  - Direct: revaluation of gold holdings within NFA.
  - Indirect: exchange rate pass-through on FX-denominated assets/liabilities; higher OMO costs from monetary policy tightening.
  - NFA yields unchanged as gold has zero yields.
- Balance-sheet outcomes:
  - Baseline projections: equity as a share of GDP improves from approximately -6.9 percent of GDP to around -0.35 percent of GDP over a 20-quarter horizon, assuming gold share of reserves = 20 percent.
  - Under a 30 percent gold price shock, equity-to-GDP gap relative to baseline ranges from approximately 0.57 percentage points of GDP in Q1 to 0.47 percentage points over subsequent quarters; impact dissipates over forecast horizon.
  - Larger gold price declines produce wider equity gaps, but pattern of gradual convergence toward baseline preserved.
- Sensitivity to gold share of reserves (Table 8: Equity by Gold Share of Total Gross International Reserves, In percent of GDP):
  - Gold share 20%: Baseline -6.9; 30% price shock -7.4; 45% price shock -7.7
  - Gold share 30%: Baseline -6.9; 30% price shock -7.7; 45% price shock -8.2
  - Gold share 40%: Baseline -6.9; 30% price shock -8.0; 45% price shock -8.6
  - Gold share 50%: Baseline -6.9; 30% price shock -8.3; 45% price shock -9.0
- Additional balance-sheet sensitivities:
  - Stock of Gold Assets (GHS) and NFA under shocks:
    - Baseline: Gold Price (USD/Oz) 4,151; Stock of Gold Assets (GHS) 27,150; NFA (GHS) 100,791
    - 30% Price Shock: Gold Price 2,906; Stock of Gold Assets 19,005; NFA 92,646
    - 45% Price Shock: Gold Price 2,283; Stock of Gold Assets 14,933; NFA 88,574
  - Macroeconomic parameters across scenarios (selected):
    - Depreciation: Baseline 7.0; 30% Price Shock 9.5; 45% Price Shock 10.7
    - Nominal GDP Growth Rate: Baseline 13.0; 30% Price Shock 13.5; 45% Price Shock 13.7
    - Domestic Policy Rate: Baseline 12.0; 30% Price Shock 13.6; 45% Price Shock 14.4
- Timing to restoration of positive equity:
  - Without shock, solvency restored around the twenty-second quarter at 20 percent gold share and the twenty-third quarter at 50 percent.
  - Under a 30 percent price shock, return to positive equity shifts from the twenty-third to the twenty-seventh quarter as gold share rises from 20 to 50 percent (delay ≈ one year).

### Key conclusions on resilience and risks
- Aggregate findings:
  - Banking system broadly resilient at aggregate level; central bank equity improves toward positive territory over medium term under baseline.
  - Gold price shocks generate manageable aggregate risks but material near-term equity shortfalls for BoG and important tail risks for banking-sector institutions.
- Distributional and concentration risks:
  - Resilience is uneven across banks; weaker institutions (e.g., domestic private banks with CAR = 5.7 percent) face material capital erosion risk.
  - Higher gold share in reserves amplifies BoG exposure to gold price corrections—deepening equity shortfalls and prolonging recovery time.
- Caveats:
  - Stress tests conducted under quasi-static balance-sheet assumptions; do not capture second‑round feedback effects.
  - Central-bank stress-test scenarios are deterministic and should not be interpreted as forecasts.
  - Specific results sensitive to assumptions on interest-rate pass-through, funding-cost dynamics, mark-to-market valuation of government securities, and behavioral responses.

### Policy implications and recommendations
- Banking sector:
  - Maintain strong capital buffers.
  - Address residual institutional weaknesses through timely recapitalization, strengthened supervisory enforcement, and resolution of remaining weak banks.
  - Focus supervisory attention on vulnerable banks rather than system averages alone.
- Central bank and fiscal/financial authorities:
  - Build resilience to commodity price volatility; incorporate commodity‑risk buffers into recapitalization strategies.
  - Continue monetary policy normalization to reduce OMO costs and strengthen baseline equity dynamics.
  - Incorporate commodity risk into balance‑sheet planning given the amplification effects of higher gold reserve shares.
- Broader macro‑financial policy:
  - Proactive macro‑financial risk management in a commodity‑dependent economy is essential.
  - Completing financial sector reforms under the GFSSS and strengthening crisis preparedness remain central to sustaining financial stability.

*Source: IMF African Department; Bank of Ghana; IMF staff estimates (excerpts from the provided content unit).*

### 4.      The authorities’ reform efforts under the Extended Credit Facility (ECF)-supported

### 4.      The authorities’ reform efforts under the Extended Credit Facility (ECF)-supported

### Progress under the ECF-supported program
- Progress in 2025 included:
  - Resumption of tariff adjustments.
  - Strengthened implementation of the Cash Waterfall Mechanism (CWM).
  - Steps toward arrears reduction.
- These measures have helped stabilize the sector’s financial position, but key vulnerabilities remain and sustained reform efforts are essential to durably restore financial viability and reposition the energy sector as a platform for growth.

### How Ghana’s electricity sector works: structure and value chain
- Two distinct generation sources with different availability:
  - Thermal generators: fueled primarily by natural gas; liquid fuels used as backup when gas supply is constrained.
  - Hydropower plants: output depends on rainfall and reservoir levels and cannot be expanded on demand.
- Upstream to retail value chain (summary of entities and flows):
  - Upstream gas production: three offshore fields (TEN, Jubilee, and Sankofa) plus imports from Nigeria through the West African Gas Pipeline (WAGP).
  - Midstream: raw gas processed at the Atuabo plant (Ghana National Gas Corporation, GNGC); delivered to thermal generators concentrated in Tema and Takoradi enclaves.
  - Generation: state-owned plants (Volta River Authority (VRA), Bui Power Authority (BPA)) and Independent Power Producers (IPPs) under long-term PPAs; IPPs account for about 44 percent of installed capacity.
  - Transmission: National Interconnected Transmission System operated by the Ghana Grid Company Limited (GRIDCo).
  - Distribution/retail: Electricity Company of Ghana (ECG) in the southern and central zones; Northern Electricity Distribution Company (NEDCo) in the northern zone.
  - Tariffs set by the Public Utilities Regulatory Commission (PURC); a portion of electricity is exported regionally.

### Financial flows and the Cash Waterfall Mechanism (CWM)
- Consumer payments to ECG and NEDCo are the primary source of sector liquidity; revenues are pooled and allocated through the CWM.
- CWM features:
  - Introduced in 2020 and substantially revised in 2023.
  - Governs revenue distribution upstream but does not eliminate financing gaps.
  - Operates through a single designated collection account with a fixed priority disbursement sequence whereby resources are first used to pay fuel costs and then Level-A IPP capacity charges, VRA, GRIDCo transmission charges, and legacy debt service contributions.
  - Compliance monitored via two independent processes: ECG Revenue Validation Reports (independent auditors) and CWM Validation Reports (published by PURC).
  - The gap between validated and declared collections and that between CWM allocations and actual payments to recipients are the two principal indicators of CWM compliance.
- In practice, adherence to CWM rules has been inconsistent, including non-standard tier allocations.
- ECG’s collection performance is central: approximately 88 percent of all electricity sold in the regulated market is ECG’s collection performance determinant.

### Key financial statistics and collection shortfalls
- ECG declared revenues to the CWM in 2024 were GH¢10.4 billion against GH¢15.5 billion validated — a gap of GH¢5.1 billion (roughly one-third of actual collections).
- Collection rate of ECG in 2024: approximately 86 percent (a significant fraction of billed electricity is not recovered).
- MDAs’ unpaid electricity bills accounted for approximately 16 percent of total sector outstanding payables at end-2025.
- A World Bank–backed letter of credit (Eni/OCTP) of US$500 million at its peak accounted for a substantial share of total sector payables.

### Government financial exposures and transmission channels to the public balance sheet
- Three structural reasons for government exposure:
  - Direct ownership/equity across the value chain and control of critical infrastructure.
  - Limited financial ringfencing between entities: losses propagate rather than being resolved by insolvency or service withdrawal.
  - Long-term PPAs with IPPs embed fixed payment obligations (capacity charges, take-or-pay), so costs do not fall when demand weakens or collections fall short.
- Transmission mechanism from distribution shortfalls to sovereign exposure:
  1. Weak distribution performance (technical and commercial losses, incomplete bill collection, underreporting) reduces cash available at ECG.
  2. Reduced collections produce CWM allocation shortfalls (CWM not designed to eliminate financing gaps).
  3. Unpaid obligations accumulate as arrears to upstream entities (IPPs, gas suppliers, FS).
  4. Accumulated arrears impair operational conditions (fuel supply), prompting substitution to liquid fuels at high international prices when gas deliveries are constrained or delayed.
  5. Higher generation costs widen financing shortfalls that are ultimately absorbed by the government via direct budget transfers or the accumulation of public liabilities.
- Financial stress is transmitted to the public balance sheet even in the absence of explicit guarantees due to the lack of credible alternative resolution mechanisms across stages of the value chain.

### Cost structure, price linkages, and exchange rate exposure
- Generation costs and key price points:
  - Domestic gas pricing is generally not referenced to international gas hub benchmarks; WACOG is largely unresponsive to global gas price volatility.
  - Jubilee and TEN associated gas: administered price of approximately US$2.90/MMBtu; supply volume tied to oil production rates rather than gas demand.
  - Sankofa non-associated gas: nominally contracted at approximately US$8.72/MMBtu (the estimated net cost of Sankofa gas to Ghana is less than US$4.5/MMBtu after accounting for GNPC's participating interest, royalties, and taxes); indexed to Brent crude.
  - Nigerian gas (WAGP): contracted at approximately US$8.75/MMBtu and intermittent (force majeure since 2011).
  - Original 2015 Sankofa Gas Sales Agreement indexed at a headline price of US$9.8/MMBtu; renegotiated in 2019 with a reduced price.
- Two channels by which Brent crude and liquid-fuel substitution affect generation costs:
  - Oil-indexed gas contracts (notably Sankofa and WAGP) affect WACOG with a lag.
  - Substitution to liquid fuels when domestic gas is insufficient transmits oil price changes immediately into generation costs because liquid fuels are procured at spot prices.
- Exchange rate (GHS/USD) movements are the most pervasive and fastest-acting source of cost pressure because sector costs (fuel procurement, IPP capacity charges, debt service) are generally denominated in U.S. dollars while ECG revenues are denominated in cedis.
- Policy implication: cost pressures from exchange rate depreciation and oil price increases can rapidly widen the sector’s financing gap.

### Structural drivers of financial imbalances and their interaction
- Three interrelated structural gaps (2024):
  - Tariff gap: difference between the cost of supplying electricity and revenue implied by the approved tariff schedule. Tariff adjustments have been uneven, particularly around election cycles; quarterly structural benchmarks under the IMF-supported program have supported more regular adjustments since 2025.
  - Distribution gap: technical and commercial losses reduce the amount of electricity billed to consumers (technical losses from aging infrastructure and overloaded equipment; commercial losses from illegal connections, meter bypassing, billing errors, insufficient metering).
  - Collection gap: incomplete payment of billed electricity (with an ECG collection rate of approximately 86 percent in 2024 and significant non-payment by public sector entities).
- The three gaps have a multiplicative effect:
  - Tariff gap reduces revenue per unit sold.
  - Distribution gap reduces billable volume.
  - Collection gap reduces the share of billed revenues actually received.
- Even cost-reflective tariffs can be insufficient if the distribution and collection gaps persist; conversely, high collection performance can be undermined by tariff under-recovery and distribution losses.

*Source: Ghanaian authorities and IMF Staff.*

### 16.      The inconsistent implementation of the sector’s regulatory framework amplifies the

### 16.      The inconsistent implementation of the sector’s regulatory framework amplifies the

### The sector’s financial position: size and drivers of shortfalls
- The energy sector recorded sizable annual shortfalls in recent years, estimated at approximately 1–1½ percent of GDP.
- The annual energy sector shortfall stood approximately at US$1.4 billion in 2025 or 1.2 percent of GDP (US$1.6 billion or 1.4 percent of GDP in 2024), reflecting the combined effect of the tariff, distribution, and collection gaps.
- The narrowing of the shortfall between 2024 and 2025 was driven primarily by:
  - improved macroeconomic conditions and a stronger cedi (lowering the GHS cost of USD-denominated obligations),
  - reduced reliance on liquid fuels,
  - rather than structural improvements in operational or collection performance.
- Positive revenue growth (below 10 percent in real terms) largely reflected demand growth rather than efficiency gains.

### Outstanding payables, arrears, and fiscal spillovers
- The stock of outstanding payables reached a peak of about US$2.2 billion (1.9 percent of GDP) in early 2025 before declining to about US$1.7 billion at end-2025 (1.5 percent of GDP), mainly reflecting clearance of arrears with FS.
- ECG’s stock of arrears reached a peak of US$3.5 billion in 2025Q2 and declined to US$2.8 billion at end-2025.
- Sector payables continue to generate additional costs through penalties, financing charges, and strained supplier relationships.
- Government interventions to prevent supply disruptions typically occur outside the CWM and take the form of budget transfers to individual entities (IPPs, gas suppliers, FS) and/or off-budget operations through credit notes.
- Government transfers to the energy sector amounted to about US$2 billion in 2025 (US$1.5 billion in 2024), of which approximately half covered current invoices and the remainder reduced the legacy debt stock.
- NGC credit notes to gas suppliers totaled approximately US$1 billion in 2025 form US$0.4 billion in 2024.
- The ECG’s compliance and CWM shortfalls in 2024 contributed to a marked deterioration in 2024: government transfers increased from about US$0.7 billion in 2023 to approximately US$1.2 billion in 2024.

### Service delivery, distribution losses, and economic costs
- Distribution losses remain elevated and geographically concentrated: losses of 31.3 percent in northern areas serviced by NEDCo and overall losses at 27 percent at end-2024.
- The WB PforR targets: 23.8 percent by December 2025 and 19.2 percent by December 2027; the GNEC targets 23 percent by 2030.
- High losses and unreliable supply disproportionately affect households and firms least able to absorb them; manufacturing firms report power outages that disrupt production and firms unable to afford backup diesel generators absorb output losses directly.

### Regulatory and tariff framework (Box 1): institutions and mechanisms
- Institutional roles:
  - Ministry of Energy and Green Transition (MoE): energy policy formulation, implementation, supervision.
  - Energy Commission (EC): technical regulator—licensing generation, transmission, distribution; administering competitive procurement of new generation capacity.
  - PURC: economic regulator—tariff determination, monitoring service standards, promoting fair competition.
  - Petroleum Commission (PC): governs upstream oil and gas contracts, including production sharing agreements under which GNPC holds equity alongside IOC partners.
- PURC tariff mechanisms:
  - Multi-Year Tariff Order (MYTO): comprehensive review every three to five years; most recent MYTO established tariffs for 2026–2030 with a 9.86 percent increase effective January 2026.
  - Automatic Adjustment Formula (AAF): adjusts tariffs quarterly within the MYTO period for four cost variables beyond utilities' control: the GHS/USD exchange rate, domestic inflation, the hydro/thermal generation mix, and the WACOG.
  - The latest quarterly AAF change reduced tariffs by 4.81 percent, reflecting cedi appreciation and lower inflation.

### ECF-supported reforms: progress and remaining gaps
- ECF program focus areas (building on ESRP): restoring cost recovery, strengthening ECG revenue collection, improving ECG operational efficiency, advancing PSP in distribution, renegotiating onerous PPAs, addressing legacy debt.
- Complementary World Bank support: WB PforR approved June 2024 for measures including economic dispatch, ECG collection efficiency, energy accounting systems, customer services, financial management transparency, IPP invoicing, and clean cooking access; WB Development Policy Financing supported strengthened CWM implementation in 2025.
- Tariff restoration:
  - Resumption of quarterly tariff adjustments in 2025 and new MYTO for 2026–30 supported cost recovery.
  - Electricity tariffs have increased by about 40 percent since March 2025 on a cumulative basis.
  - Increased use of domestic gas reduced reliance on more expensive liquid fuels; ENI's July 2025 expansion of OCTP gas processing capacity to 270 MMcfd supported this shift.
- Distribution and collection:
  - Smart meter deployment and billing system upgrades have been slow; distribution losses remained at 27 percent at end-2024.
  - Efforts to improve collection and CWM compliance contributed to a partial recovery in sector liquidity; implementation durability depends on continued reform and institutional safeguards.
- Arrears reduction:
  - Increased government transfers and renegotiation of PPAs and legacy debt contributed to a decline in arrears from peak levels.
  - The sector still carries substantial stock of debt and requires a fully financed and credible medium-term resolution strategy.
- Institutional reforms:
  - Adoption of a framework for PSP in ECG distribution and a legislative instrument mandating competitive procurement for new generation capacity are recent steps.
  - Delays in operationalizing these reforms (issuing implementing guidelines, appointment of a transaction advisor) have limited immediate impact.
- Overall assessment: ECF-supported reforms helped stabilize the sector’s financial position and address key weaknesses, but tariff gaps, elevated distribution losses, collection challenges, and significant arrears persist.

### Policy priorities: roadmap from stabilization to transformation
- Objective sequencing:
  - (i) prevent re-emergence of large financial imbalances in the near term,
  - (ii) strengthen operational and financial performance in the medium term,
  - (iii) establish institutional safeguards to ensure durability of reforms.

- Near-term priorities: lock in financial stabilization
  - Ensure consistent tariff adjustment through regular application of the AAF.
  - Strengthen institutional safeguards, including PURC’s operational independence, to insulate tariff-setting from political pressure.
  - Strict enforcement of the CWM: adherence to CWM guidelines, regular independent validation of collections, and timely publication of compliance reports.
  - Deliver on a credible and fully financed arrears resolution strategy: implement the arrears clearing agreement reached in 2025 with IPPs and FS while avoiding new obligations.

- Medium-term priorities: strengthen operational and financial performance
  - Reduce distribution losses through coordinated metering, billing systems, and enforcement actions:
    - accelerate rollout of smart meters,
    - strengthen energy accounting systems,
    - improve oversight of technical and commercial losses.
  - Improve revenue collection, particularly from public sector entities:
    - enforce payment obligations,
    - expand prepayment arrangements,
    - implement structured repayment plans for large consumers,
    - regular independent audits of billing and collection systems to enhance transparency.
  - Advance PSP in distribution to transfer defined operational areas within ECG to private concessionaires, requiring Cabinet approval of a strategy defining the commercial model and structured engagement with prospective private operators.

- Structural priorities: strengthen governance and prevent recurrence of fiscal risks
  - Institutionalize tariff-setting and regulatory processes to ensure durability of reforms and reduce policy slippages.
  - Enhance transparency and financial governance across sector entities:
    - timely publication of audited financial statements of all energy sector public enterprises,
    - improved monitoring of sector-wide financial flows,
    - strengthened disclosure of contingent liabilities and quasi-fiscal operations.
  - Ensure competitive and transparent procurement of new generation capacity through effective implementation of the LI requiring competitive procurement of PPAs.

- Expected outcomes of steadfast implementation:
  - A financially sustainable sector with a creditworthy off-taker (ECG), predictable tariff adjustments, and disciplined procurement will support investment in generation and distribution and reduce reliance on costly emergency interventions.
  - Improvements in domestic gas supply are expected to further enhance cost stability and reduce dependence on liquid fuels; OCTP already supplies approximately 70 percent of Ghana's domestic gas for power generation, with the July 2025 expansion to 270 MMcfd and a US$1.5 billion investment commitment by ENI and OCTP partners expected to increase gas supply over the medium term. Jubilee and TEN partners have separately committed approximately US$2 billion to sustain and increase oil and gas output.

*International Monetary Fund (excerpts from chapter on Ghana’s energy sector financial position and reform agenda)*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1ghaea2026002.pdf_