Ghana: Chinese loans take centre stage in restructure talks

Commitment from Ghana’s external creditors has given Accra temporary relief in terms of debt management. But analysts fear that China – already standing accused of dragging negotiations around Zambia’s debt restructuring – could present a major hurdle for Ghana.

The IMF, which approved a $3bn relief package for Ghana in May, has warned that delays in debt restructuring agreements with external creditors will hurt the successful implementation of the bailout programme.

China is central to the debate, with Ghana owing the Asian giant $1.9bn in debt.

Resource-backed loans

About $619m of Ghana’s debt with China is collateralised, backed by assets including cocoa, bauxite, and oil, according to the IMF. This puts the country at risk of losing important resources if repayments are called upon, especially if China isn’t willing to make concessions on this.

“Ghana’s case is critical because on the Sinohydro deal, for instance, we haven’t even started refining the bauxite,” says Denis Gyeyir, Africa Programme Officer at the Natural Resource Governance Institute.

“The agreement is such that if we are unable to supply enough alumina [to create aluminium from bauxite] to repay the loan, they are going to rely on other revenues and this includes tax revenue. China will not soften its stance on these loans,” he says.

Debt restructuring of asset-backed loans could also impact how output from the Bui dam and the Atuabo gas processing plant is used given that these two projects have been developed with support from China.

But the president of Accra-based IMANI Africa, Franklin Cudjoe, says these types of loans may not necessarily affect negotiations. “There is nothing wrong with these arrangements because these were contemplated before we got into this [debt] situation.

“We should only be concerned now because we have managed our debt issues badly and it is a consequence of bad economic management,” he says.

Chinese preference

Reports suggest that China would prefer extending maturities and increasing interest, which ultimately will not look good in terms of Ghana’s medium to long-term macros.

“I don’t think they will accept a haircut and I don’t think it is in their own interest to take it. I suspect they will extend the repayment dates,” says Cudjoe.

Gyeyir says: “The window of opportunity [for restructuring] is with the outstanding tranche of financing. For what has been disbursed so far, I don’t see China softening its stance and there are examples from Guinea and DR Congo to look at. We shouldn’t expect that they will write off the resource-backed loans.”

Apart from the pre-commitment meetings with Chinese officials, Ghana is adopting forward-looking approaches to get China to move in its favour.

At the 2023 Qatar Economic Forum last month, President Akufo-Addo was quick to hype China’s investments in the country as beneficial, arguing that “they have been very helpful, and I know it’s a matter of controversy in the West but for us, they have been strong friends and in the time of this difficulty they have proven to be a strong partner.”

Year-long deliberations

But given the experience with Zambia – which owes China around $6bn – this may not be the case, as deliberations with the creditor committee have taken almost a year so far. Indeed, Beijing is accused of not being open about the terms of its loans to Zambia and in most quarters is being held responsible for the delays in concluding the restructuring talks.

“China is asking a lot of questions in the creditors’ committees, and that causes delays that strings out the process,” World Bank president David Malpass said in an interview with Bloomberg TV in January.

“It is likely that some creditors may want to paint China as an unreasonable partner [that is] not flexible to developing countries and that is something China doesn’t want to be seen as,” says market economist Jerome Kuseh.

“But China will take a posture that shows that it supports developing countries,” he says.