A delegation led by Ghana’s Finance Minister, Ken Ofori-Atta, is expected to go to China this week to begin talks on the country’s US$1.7 billion bilateral debt restructuring. However, the discussion is coming off at a time the diplomatic rift between China and the United States (US) seems to be widening.
Relations between the two largest economies in the world started deteriorating when the US accused China of flying spy balloons over its airspace. The US military shot down the balloon on Feb 4.
China described the shooting as “absurd and hysterical”, noting that the balloon was of civilian nature and was meant for research purposes only.
The tension has extended to the war between Russia and Ukraine. The US President, Joe Biden, recently visited Kyiv and renewed his country’s commitment to supporting Ukraine in the war. The Chinese President, Xi Jinping, is also planning a trip to Moscow as a show of support for Russia.
Why should Ghana care?
Ghana, a debt distressed country seeking a US$3 billion External Credit Facility (ECF) from the International Monetary Fund (IMF), needs to restructure its debt to secure the facility.
The country has officially asked its bilateral creditors for debt treatment under the G-20 Common framework initiative, involving the Paris Club (including the US) and non-Paris Club members like China.
Unfortunately, the discussion is coming off at a time China is at loggerheads with the US and the West. Ghana needs to get China and its “foes” to form a creditor committee and collectively agree to its debt restructuring request before it can secure the IMF bailout.
Zambia’s request for debt treatment under the G20 initiative for an IMF facility has run into difficulties due to the stand-off between China and the West. Discussion over the country’s debt restructuring has stalled due to the tension.
The West has accused China of frustrating the debt talks currently underway in developing markets under the G20 Common Framework Initiative. The world's poorest
countries face $35 billion in debt-service payments to official and private-sector creditors in 2022, with more than 40% of the total due to China, according to the World Bank.
The World Bank and the United States have blamed China for dragging its feet with Zambia’s debt talks. However, China will take none of that, and is also accusing the
West of meddling in the restructuring talks of a sovereign nation and, in the process, risking the success of the talks.
“The biggest contribution that the U.S. can make to the debt issues outside the country is to act on responsible monetary policies, cope with its own debt problem, and stop sabotaging other sovereign countries’ active efforts to solve their debt issues,” the Chinese Embassy in Zambia said in a statement.
“For Zambia’s debt related to China, China has been active in co-chairing Zambia’s Official Creditor’s Committee under the G20 Common Framework and working hard with
other parties to seek a sustainable solution in line with the principle of common actions and fair burden-sharing”.
Can Ghana get the IMF deal in March?
The geopolitical tension between China and the US will have a significant impact on the bilateral debt restructuring process.
Ghana needs to leverage its strong ties with China, which date back to the era of Ghana’s first President, Dr. Kwame Nkrumah in the early 60s, to get Asia’s biggest
economy to get a deal.
The two countries have enjoyed fruitful cooperation in the areas of trade, health, education, among others. In 2018, China’s President Xi Jinping hosted Ghana’s
President Akufo-Addo in China to celebrate the bond of friendship between their countries.
China has financed some major infrastructure projects in Ghana including a US$600 million loan for the construction of the 400 megawatts hydro-electronic dam at Bui in the Brong Ahafo Region.
Whether Ghana can leverage on its ties with China to hasten the discussion remains to be seen. However, the West African nation is in for a long discussion due to the tension between the world’s superpowers and the March deadline for the IMF programme does not look feasible.
Breakdown of Ghana’s debt
|Eurobonds||$13.2bn (46% of $29bn of external debt)|
|Multilaterals (inc. IMF)||$8bn (28%)|
|Commercial creditors||$3.1bn (11%)|
|Export credits||$1bn (3%)|
|non-China bilateral||$1.4bn (5%)|
|Debt to China||$1.7bn (6%)|
|Total external debt||$29bn|
|Total domestic debt||$15bn (GHS193bn)|
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