Ghana Fears Its China Debt

 

Coming Due

GHANA

Officials in Ghana’s finance ministry recently said talks to restructure its debt to China were “highly cordial and fruitful” – but, however, not concluded.

Ghana owes China almost $2 billion. As Reuters reported, while the West African country technically is in default because it has missed payments to service its debt, the real problem is that the country needs to reach a deal restructuring $46 billion in debt, including to China, or else it won’t receive a $3 billion rescue loan from the International Monetary Fund (IMF).

The IMF loan is crucial because Ghana’s economy is in crisis. The value of the country’s currency, the cedi, has plummeted against the dollar, forcing Ghanaian consumers to pay more for imported goods. Inflation is running at 50 percent.

Post-pandemic global economic woes as well as the Russia-Ukraine war’s effect on food and energy prices are major contributing factors. But poor governance has also played a part. As Bloomberg wrote, Ghana was once an island of stability in Africa, held up as a model. It also has oil reserves. But the government still borrowed too much.

And it hasn’t learned its lessons.

Despite the crisis, for example, President Nana Akufo-Addo has vowed to proceed with the construction of the $58 million to $100 million National Cathedral of Ghana, a massive church that critics say is a costly vanity project. “Taxpayers’ money should not be used to fund a personal pledge to God,” said Sam George, a member of parliament, in an interview with the BBC. “We are Christians, but the government has no business funding the construction of a religious building,”

Ghana’s former President John Dramani Mahama, who served from 2012 to 2017, recently announced he would challenge Akufo-Addo in the 2024 presidential election by running on a campaign to restore the economy, reported Voice of America. He’s been blasting Akufo-Addo for economic mismanagement.

Hanging over Ghana’s negotiations with China are fears that many other African and developing countries will also want to renegotiate their debts, wrote GhanaWeb, a Holland-based news website. China has invested $23 billion in African infrastructure alone between 2007 and 2020, more than double that of the four next richest countries, according to the Center for Global Development.

Disagreements between Western and Chinese creditors have complicated the restructuring that Ghana needs to finalize in order to receive the IMF loan, too, argued Gary Kleiman, a consultant and former IMF financial sector expert.

In the meantime, countries like Sri Lanka, Zambia, and Tunisia are also struggling to restructure their debts in order to receive IMF funding. Tunisian banks, for instance, have warned that they face liquidity risks – no cash, in other words – if they don’t receive help soon, Fitch Ratings noted.

These omens don’t bode well for the near future of the global economy.