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Ghana cautioned on Chinese $3-billion loan arrangement

By Lawrence Quartey
Posted on Monday, 13 February 2012 17:41

The Economic Intelligence Unit (EIU) says Ghana’s decision to allow the use of 70 per cent of future oil revenue as collateral for borrowing gives cause for concern.

The report, made available in Accra Monday, says if not managed properly, little benefit will be seen in return for a larger debt stock and greater potential for corruption.

The EIU believes observers should monitor closely how the Ghanaian government, under the National Democratic Congress (NDC) party, handles the US$3bn loan package for infrastructure from China.

Last year, the government negotiated and signed a US$3-billion loan on non-concessional but competitive terms with the China Development Bank (CDB). 

The EIU report notes that the recent development of links with China, backed by Chinese funding for infrastructure projects has led to a shift in emphasis in Ghana’s international relations.

On economic management front, the report notes that regaining control of the public expenditure is the main challenge for the country’s economic policy, especially in the early part of this year.

In the first quarter of last year, the country’s wage bill, for instance rose to 24 per cent after a new payment policy was implemented for public workers.

The government says it is aware that fiscal policy management needs to improve, but the report says pressing demands for greater development spending will mean that there will be slippages on fiscal targets.

However, the report says donors are likely to overlook minor lapses but may be less tolerant of any further large-scale build-up of arrears, adding that as the year progresses, strong growth and the development of the oil and gas sector should make fiscal policymaking easier.

As political activities intensify ahead of the upcoming December election, it says the reform process will accelerate towards elections, but its pace will depend on who is in power.

The report, however, says fiscal policy management is expected to improve over the next five years as strong economic growth and the development of the oil and gas sector will contribute to a steady increase in revenue.

EIU is an independent business within The Economist Group that offers forecasting and advisory services.

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