Ghana faces tough negotiations with China over debt restructuring – Joe Jackson
Ghana is facing a major hurdle in its efforts to restructure its external debt with China, as economists predict tough negotiations ahead. The Asian giant is currently one of Ghana’s biggest bilateral creditors, with about $1.7 billion of debt owed to China. While the government had hoped to secure debt cancellation, many analysts believe that this is next to impossible, and that talks with Chinese creditors could prove to be useful.
Director of Operations at Dalex Finance, Joe Jackson, has warned that the negotiations with China are likely to be difficult, and that the country is unlikely to cancel Ghana’s debt entirely. “Let nobody think that China will just cancel its debts and the Finance Minister will come back to announce that China has forgiven Ghana X amount of billion dollars. It will be hard negotiations and China won’t give anything away for nothing in return,” he said in a recent interview.
Despite this, the Ghanaian government remains committed to the process, and had scheduled a high-level delegation visit to China for this week in order to seek talks for possible debt cancellation. However, Finance Minister Ken Ofori-Atta announced that the visit has been postponed, citing the upcoming meeting of the National People’s Congress of China scheduled for early March. The rescheduled talks with China are now expected to take place later next month.
The need for debt restructuring has become even more urgent following Ghana’s recent agreement with the International Monetary Fund (IMF) for a $3 billion loan. However, the approval of the loan is contingent on Ghana restructuring its debt of GHC467.4 billion ($39 billion). As of September 2022, Ghana owed about $13 billion in Eurobonds and $4 billion in bilateral loans, of which $1.7 billion is owed to China, according to the International Institute of Finance.
Ofori-Atta has emphasized the importance of the China visit, stating that the talks would have been “a crucial opportunity to discuss debt sustainability” and to secure a debt service suspension. The delay may therefore be seen as a setback for the government, as debt restructuring is seen as essential for the IMF loan to proceed.
Despite the challenges, the government remains focused on restructuring its debt and securing IMF approval for the loan. It is also looking to leverage the newly established Development Bank Ghana to create jobs and support small and medium-sized enterprises, particularly in the agriculture and manufacturing sectors. The bank has been set up with a capitalization of GHC800 million ($134 million) and is expected to provide long-term finance to businesses at low-interest rates.
In a bilateral meeting with the German Federal Minister for Economic Cooperation and Development (BMZ), Svenja Schulz, Ofori-Atta discussed the role of the KfW in the post-World War II revitalization of the German economy. They also talked about the need to deploy a similar mechanism in Ghana, using the newly established Development Bank Ghana as a catalyst for the country’s economic recovery.
As Ghana looks to recover from the impact of the pandemic on its economy, it will require continued cooperation and support from the international community. While the delay in talks with China may be seen as a setback, the government remains committed to restructuring its debt and securing the IMF loan, and is looking to draw on the experience of Germany to make this a reality.
