The German government has responded to Ghana’s request for assistance in securing debt relief from its external creditors, particularly China. However, Germany has laid out certain conditions that Ghana must meet before it can offer its support.
The response from Germany underscores the challenges that Ghana is facing as it seeks to navigate its way through a difficult economic landscape.
Ghana is grappling with a debt burden of $5.7bn, with China being its largest external creditor, accounting for approximately $1.7bn of the total debt. President Akufo-Addo has urged German Finance Minister, Christian Lindner, to use his influence to convince China to accept Ghana’s proposal for debt relief.
In response, the German Ambassador to Ghana, Daniel Krull, has indicated that Germany is willing to provide support to Ghana, but only if certain conditions are met. The first condition is that Ghana must take measures to address the problems in the energy sector, which is the biggest loss maker in the country. Mr. Krull noted that $1.5bn in new debt is piled up in this sector every year, which makes it difficult to find a sustainable solution for the country’s financial problems.
To address this problem, Ghana needs to find a way to reduce the technical and non-technical losses in the energy sector. Without addressing this issue, even if Ghana were to receive $10bn from the International Monetary Fund (IMF), the problem would not be solved in the medium term. Mr. Krull’s comments highlight the importance of Ghana’s domestic reforms in finding a lasting solution to its debt burden.
The second condition laid out by Germany is the need to increase revenue by improving tax collection. Ghana has one of the lowest tax-to-GDP ratios in the world, at less than 13%. To address this issue, Germany has been working with Ghanaian authorities to set up a smart system of property tax collection. However, Mr. Krull noted that the decision-making process needs to be faster to meet the targets agreed with the IMF.
Finally, Mr. Krull stressed the need to make the budgeting process more transparent. He noted that the current procedures for how the budget is set up are difficult to understand, and this needs to be improved. He expressed confidence that with the necessary political will, new opportunities would be created to enhance economic growth in Ghana.
The response from Germany highlights the challenges that Ghana is facing as it seeks to address its debt burden. While external assistance is important, the domestic reforms needed to address the underlying problems in Ghana’s economy are equally crucial. Ghana’s success in addressing these challenges will depend on its ability to implement these reforms in a timely and effective manner.
