In the event that Ghana defaults in the payment of some four loans to China, the country will lose its sales of electricity and the revenue accrued from the exportation of its minerals.

This is according to information provided by the International Monetary Fund (IMF) in its May 2023 report that touched on the request for an arrangement under the Extended Credit Facility, the Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 17, 2023, and a Debt Sustainability Analysis prepared by the staffs of the IMF and the Internal Development Association

Collateralized debt is any contracted or guaranteed debt that gives the creditor the rights over an asset or revenue stream that would allow it, if the borrower defaults on its payment obligations, to rely on the asset or revenue stream to secure repayment of the debt, the IMF defines.

The Fund revealed that collateralized debt, entirely held by China, accounts for only 2.0 percent of external debt. And this corresponds to 4 loan agreements signed in 2007-18 that amount to US$619 million (0.9 percent of GDP) to finance infrastructure projects.

"These are collateralized against commodity production (cocoa, bauxite and oil) and electricity sales," the IMF report stated.

In 2007, Ghana under the leadership of former President John Agyekum Kufuor secured a loan valued at $306 million for a Bui Hydropower Project 400 MW (CL part) with a total cost of $749.6 million and used its cocoa exports as collateral.

Under the Mahama government in 2012, government received a loan worth $75 million and $76 million for Bui Hydropower Project 400MW Additional Finance Loan 1 and Bui Hydropower Project 400 MW Additional Finance Loan 2, respectively. Cocoa exports were used as collateral.

In 2013, Ghana was provided a $150 million loan for an Integrated National Security Communications Enhancement Network (ALPHA) Project - Phase I, as well as a $850 million loan for a Western Corridor Gas Infrastructure Project; Jubilee Oil Field. The government used its oil exports as resource security.

The West African country in 2019 under the leadership of President Akufo-Addo secured three loan deals - $186 million for the construction of Eleven Coastal Fishing Landing Sites Project, $211 million for an Accra Intelligent Traffic Management System and Road Completion with oil exports as collateral. Using Ghana's bauxite exports as collateral, government secured $550 million for Construction/Rehabilitation of Selected Roads and Interchanges in Ghana- Phase 1. These details were provided by the China Africa Research Initiative.

The IMF has stressed that “statutory funds will not be allowed to collateralize revenue streams and issue debt. No objection certificates will not be issued to any statutory fund by the governing authority in this regard.”

As at the end of 2022, Ghana owed China $1.9 billion out of which $619 million were collateralized loans.

China's loans to a number of African countries and other poor nations have caught the attention of the World Bank which finds it concerning.

President of the World Bank David Malpass says that the terms and conditions need to be "more transparent".

"For governments in Africa, they shouldn't be offering collateral as an inducement to make a loan, because it locks it up for generations. That's been happening with China."

Beijing has become one of the biggest sources for loans to developing economies in recent years. A new study led by the Kiel Institute for the World Economy shows that globally, China lent $185bn (£150bn) in bailouts to 22 countries between 2016 and 2021.

Also, the World Bank notes that the world's poorest countries faced $35 billion in debt-service payments to official and private sector creditors in 2022, of which 40% was due to China alone.

Pakistan, Kenya, Zambia, Laos and Mongolia are just a few countries aside Ghana who are indebted to China.

In response to the concerns raised against it, Chinese Ministry of Foreign Affairs has stated that if it is to accede to IMF and World Bank demands to forgive a portion of its loans, so should multilateral lenders, which it views as U.S. proxies.

“We call on these institutions to actively participate in relevant actions in accordance with the principle of ‘joint action, fair burden’ and make greater contributions to help developing countries tide over the difficulties,” the ministry statement said.

Source: The Independent Ghana