Oil has gone from savior to curse for Ghana. When the West African nation shipped its first barrels of crude oil in 2010, then-president John Atta Mills pledged to build new roads and a deep-sea port, expand the power grid and create an aluminum industry.

Five years later and Ghana’s economy is sinking. The government was forced to seek an emergency loan from the International Monetary Fund of almost $1 billion, the currency was the worst performer in Africa against the dollar in the first half of the year and power cuts of 24 hours at a time are crippling businesses.

The promise of an oil windfall led Ghana on a borrowing spree. Feted by donors for its stable democracy in a region known for coups and civil conflict, the West African nation attracted investors hunting for high yields. Spending controls weakened at the same time as gold and cocoa prices fell. Soon Ghana went from being almost debt-free to being downgraded by credit-rating companies.

“It’s clear that Ghana did fall prey to the oil curse in the sense of the expectation that oil money was going to solve all its problems,” Philippe de Pontet, Africa director at Eurasia Group, said from Washington. “That had a perverse impact on government planning, spending and behaviors.”

After posting the fastest economic growth in Africa in 2011, Ghana’s expansion of 4 percent in 2014 was the slowest in 20 years. This month it raised its 2015 deficit target to 7.3 percent of gross domestic product to account for lower-than-expected revenue from oil.

Supply Surplus

Ghana is among producers from Iran to Russia to Nigeria that are struggling with lower-than-expected crude revenue. They are whipsawed by a global supply surplus that caused the price of Brent crude to drop about 50 percent in the past year.

It’s a long way from 2007, when Ghana rode a wave of optimism after London-based Tullow Oil Plc discovered a large offshore reserve. The World Bank estimated in 2009 that the oil boom would boost government revenue by a third and transform an economy that stood at $16 billion at the time.

When Mills opened the first oil tap in December 2010, he pledged to avoid the mistakes of other African oil producers and save revenue for future generations. The resource comes with “serious responsibilities” and the government “must ensure oil is a blessing, is not a curse,” he said.

Ghana began racking up foreign debt less than two years after it was one of a group of highly indebted poor countries granted large write-offs. The government sold its first global bond of $750 million in 2007 and, following the oil discovery, received a $3 billion loan from China in 2011.

Rising Yields

Authorities have sold $1 billion in Eurobonds in each of the past two years and plan to auction at least another $1 billion this year. The yield on the Ghana’s dollar debt maturing in 2023 is up 130 basis points, or 1.3 percentage points, to 9.286 percent since it was sold in July 2013.

Public debt has almost doubled since 2007 to reach 68 percent of gross domestic product. The country may be headed for default in the next few years, Bloomberg Intelligence’s Mark Bohlund wrote this week.

“Government has borrowed and borrowed,” said Mohammed Amin Adam, head of the Accra-based African Center for Energy Policy. “If you look at borrowing and spending behavior, it quickly reached unsustainable debt levels on the back of oil expectations.”

Part of that borrowing was used to pay higher wages after Mills implemented a new salary structure for more than 600,000 civil servants in 2010. The wage bill more than doubled to 5 billion cedis ($1.5 billion) in 2011 and increased by 47 percent the year after that.

Energy Crisis

Mills died in office in 2012. He was replaced by John Dramani Mahama, who has failed to stem debt levels or solve the energy crisis.

His government has blamed falling commodity prices for much of the crisis as it cut budgeted revenue while pointing to oil prices for the cedi’s decline. Two phone calls and a text message to the mobile phone of Finance Minister Seth Terkper weren’t answered.

The IMF loan, agreed to in April, has provided the government with some breathing space and given investors reason to come back as authorities pledge to keep spending under control. The cedi has recouped all its losses of the first half of the year. And it has gained 26 percent against the dollar since June 29, when the IMF gave a positive assessment of Ghana’s budget targets.

‘More Cautious’

“With the IMF coming in, the government is being more cautious in terms of borrowing,” said Bernard Anaba, a policy analyst at the Integrated Social Development Centre, an Accra-based research group. “I’m optimistic that the accumulation of debt will slow down.”

The cedi has plunged 58 percent against the dollar since the beginning of 2011, reaching a record low of 4.49 on June 29. Inflation reached 17.1 percent in June. Santiago Cuneo, an economist at RVX Asset Management based in Miami, said he had owned Ghanaian debt before but wouldn’t jump at it now.

“Since the IMF deal, there has been some improvement in the numbers but I’m afraid we’re going to see a weakening cedi,” he said. “Even if there’s progress on the fiscal side, the price of oil and the falling commodity prices are not going to help.