IMF warns Ghana against extending fuel subsidy despite economic gains

The International Monetary Fund (IMF) has warned Ghana that its new fuel subsidy should remain a short-term measure, saying prolonged support could jeopardise the country's hard-won economic recovery.

The caution comes after the government introduced a temporary subsidy of GH¢2 per litre of diesel for August to ease pressure on businesses and households facing higher fuel costs.

The measure, expected to cost about GH¢500m if maintained throughout the month, was announced days before the IMF's Executive Board approved Ghana's sixth review under its Extended Credit Facility (ECF) programme.

In a staff report prepared ahead of the decision, the IMF acknowledged Ghana's improving economic outlook but said support measures must not undermine the country's efforts to restore public finances.

"The recent fuel subsidy measures must be temporary and well targeted," the Fund said.

The IMF warned that making fuel subsidies permanent could erode government revenue, widen the budget deficit and reverse progress made under the three-year rescue programme.

Relief now, review later

The government has insisted the subsidy is a temporary intervention.

Energy and Green Transition Minister John Jinapor said the measure would run only for August and would be reviewed before any decision is taken on whether to extend it.

He said the intervention was intended to cushion consumers while maintaining stability in the downstream petroleum sector, adding that the government would continue to monitor market conditions before deciding on its next steps.

The subsidy comes as Ghana seeks to balance public demands for lower living costs with commitments to maintain fiscal discipline under the IMF-backed programme.

IMF highlights wider risks

Although the Fund said Ghana's economic prospects had improved, it warned that the recovery remained vulnerable to both global and domestic shocks.

It cited commodity price swings, geopolitical tensions, including conflict in the Middle East, and disruptions to global trade as external threats that could weaken the outlook.

At home, the IMF warned that delays in reforming state-owned enterprises, setbacks in economic policy implementation and failure to protect the Bank of Ghana's financial position could undermine investor confidence.

The report also revealed that the Bank of Ghana incurred losses equivalent to 1.5% of gross domestic product through its Domestic Gold Purchase Programme.

It added that several state-owned enterprises continue to pose significant fiscal risks because of persistent financial and operational weaknesses.

The IMF said its discussions with the government focused on sustaining economic reforms beyond 2026, strengthening public finances, improving the energy sector, developments in the gold industry and protecting the economy from volatility in global gold prices.

Debt outlook improves

Despite its warnings, the IMF delivered one of the strongest endorsements of Ghana's recent economic progress by upgrading the country's risk of debt distress from high to moderate.

The Fund said the improvement reflected stronger-than-expected economic growth, progress in restructuring public debt, tighter fiscal management and the recent appreciation of the cedi.

However, it cautioned that Ghana still has limited room to absorb higher external debt repayments and should continue monitoring foreign investors' participation in the domestic bond market.

The assessment suggests Ghana's economic recovery is gaining momentum, but the IMF has made clear that maintaining that progress will require difficult choices as the government seeks to provide short-term relief without weakening longer-term fiscal stability.