Finance expert urges Ghana to pursue lengthy repayment plan in China debt negotiations

Williams Peprah, an Associate Finance Professor at Andrews University in Michigan, U.S.A, has advised the Government to pursue a protracted repayment plan in negotiations with China over its external debt.

In his analysis, Prof. Peprah emphasized that China, with its geopolitical ambitions, is not inclined to reduce interest rates on debts and relies heavily on interest payments as a significant income source.

Speaking to Joy Business, Prof. Peprah cautioned that Ghana risks losing time if it does not opt for an extended debt repayment structure. He underscored that the Chinese government, considering its approach with other nations like Zambia and Sri Lanka, tends to resist debt restructuring proposals, potentially pushing countries into challenging economic situations.

“Our government should rather possibly negotiate for a lengthy repayment period. The Chinese are not interested in negotiating debts down because they feel that once they do that, more countries will come forward for similar treatments,” he stated.

Prof. Peprah expressed skepticism about Ghana securing a substantial reduction, citing the Chinese reluctance to grant significant debt restructuring concessions in other instances. Drawing from examples, he highlighted that while Zambia received only a 1.0% haircut on the interest payment, Sri Lanka experienced a lengthening of the payment period.

He further asserted that the Finance Minister’s expectation of a 20-40% haircut on interest rates might be unrealistic in the Chinese context.

“It is not certain that the Chinese are going to give us a haircut of 20 to 40% that the Finance Minister is expecting. In Zambia, they gave them 1.0% haircut on the coupon, that is the interest payment and not on the principal. For Sri Lanka, they lengthened the payment process. Based on this, it will be difficult for Ghana to get what the Minister is expecting”, he stressed.

Providing alternative suggestions, Prof. Peprah recommended that Ghana negotiate for an extended repayment period, considering China’s reliance on interest payments for revenue. He emphasized that China, despite being classified as a developing nation, may be more amenable to spreading payments over an extended timeframe.

He cautioned that a delayed debt restructuring process could pose challenges to Ghana’s Balance of Payments, potentially impacting the disbursement of the $600 million second tranche of IMF funding.

Prof. Peprah further advised the government to study China’s past negotiations to inform its proposals and navigate the delicate process of debt restructuring.