China’s share of Ghana’s $55 billion public debt is quite small at just $1.7 billion or 3% of the total, but Beijing nonetheless plays a critical role in Accra’s efforts to revive its economy. The Ghanaian government needs China’s support in order to secure an emergency financial package from the International Monetary Fund.
While that may sound straightforward, it’s not.
Zambia is up against a similar challenge and its debt restructuring process has stalled, largely because of a stand-off between China and multilateral creditors over who should take losses on their loans.
Isaac Kofi Agyei, a research and data analyst at Joy News — one of Ghana’s leading broadcasters and news outlets — is closely following all of the developments in this story and joins Eric from Accra to discuss China’s role in Ghana’s unfolding economic crisis.
Show Notes:
- My Joy Online: Ghana’s external debt restructuring: Does China matter? by Isaac Kofi Agyei
- Reuters: China says its official bilateral loans are less than 5% of Ghana debt
- Financial Times: The old arguments for debt cancellation in Africa no longer apply by Bright Simmons
Transcript:
Eric Olander: Hello, and welcome to another edition of the China in Africa Podcast. I’m Eric Olander. Cobus is at an event for China-Africa Scholars in Germany, and so he won’t be able to join us today, but he’ll be back again with us next week. Today, though, we’re going to bring you up to date on the debt situation in Ghana. Let’s just say that it has been a god-awful, terrible, miserable, bad year for Ghana so far, at least economically speaking. Now, earlier this year, they became the second country in Africa in the pandemic era to default on a part of their debt. Zambia, of course, you’ll recall, was the first to default on their debt. Now, in Ghana, the problem is that $55 billion of total public debt just became too much to handle. Let’s break that down, what that $55 billion is made of.
42% of that debt is owed to domestic creditors, with the remainder owed to external lenders, which comes to be about $28 billion or so. That $28 billion breaks down into a few big groups. Now, Euro bond holders make up the largest with about $13 billion. Those are the bond holders, what we call the commercial creditors or the private creditors. Then there are the multilateral creditors. That’s the African Development Bank, that is the World Bank, the IMF — they’re the second largest with about $8.1 billion. And then there are the Paris Club creditors. Those are the rich countries, 1.9 billion. And close to the bottom are the Chinese with just about $1.7 billion. Now, these numbers are coming from Reuters. There’s probably some different accountings that I’ve seen, but it gives you an idea of where we are.
But when you look at the amount that the Chinese owe against the whole, it accounts for just 3% of the country’s total public debt. Now, that’s important because we’ve been hearing regularly from the foreign ministry in Beijing that the accusations that the Chinese have a bigger role in Ghana’s debt crisis are misplaced, in part because they own such a small share of the total, but the Chinese are nonetheless very important in the process, which is why Ghanaian finance minister, Ken Ofori-Atta, traveled to Beijing last week to meet with Chinese finance minister, Liu Kun. He also met with the commerce Minister and officials at the China Exim Bank. Now, if you follow Ofori-Atta’s Twitter feed, he’s telling everybody, with big smiles, that the situation is under control. Everything’s looking good.
What they basically want to do is they need to get their creditors in line in order to qualify for a $3 billion emergency package from the International Monetary Fund. Now, that sounds reasonable, but this is the process that we’ve been watching stall in Zambia. It’s a process that took almost a year to complete in Sri Lanka. And the Ghanaians, they seem confident that they’re going to be able to complete this process by the end of March. Now, the end of March is already here, they haven’t gotten a deal yet, but they think they’re going to get it imminently. We want to see if that’s really the case. So, I am absolutely thrilled to have on the show for the first time, Isaac Kofi Agyei, who is the lead data and research analyst at the popular Ghanaian radio online and TV network, Joy News. He has been commenting on this for weeks, doing some excellent reporting on this on TV and online.
Isaac, good afternoon to you in Accra, and thank you so much for joining me on the show today.
Isaac Kofi Agyei: Good afternoon, Eric. It’s a delight joining you today.
Eric: It’s fantastic to have you, and I hope you’re going to be able to set us straight. Last week you published an article on Joy FM that asked the question, Ghana’s external debt restructuring: Does China matter? Let’s start our conversation there. Does China matter in this whole process?
Isaac: Well, that’s well, a very big question that to date, I think the government has not really been able to answer that question, whether China really matters in this whole debt exchange program or debt restructuring talks that we just embarked on. But we have to understand that the kind of restructuring we are doing comes in two folds where we have the domestic aspect and then the external or foreign aspect. With the domestic aspect, we’ve been able to actually go through where the success rates was about 85%. A lot of the domestic creditors or people that we are owning in our local currency, which is the cedi, actually coming on board for a restructuring. But one thing that’s so important is that at the moment, the reason why we so much need a $3 billion bill package from the IMF, it is not just about the money, it’s about also restoring the credibility that we have in the Eurobond market or in the international financial market.
If you look at Ghana’s external debt, for instance, it’s the biggest challenge currently, because if you look at a country like Ghana where at the beginning of last year, we had international reserves worth $10 billion, and within a span of just 11 months, it dwindled down to just $5 billion. You could see there’s a lot of pressure on the country’s external reserves or international reserves, if you want to put it that way. So, in this instance where Ghana needs liquidity, foreign liquidity, mind you, we don’t print dollars here in Ghana. And if you are settling any external debt or debt servicing, we are supposed to pay them in dollars. And we just have about $5 billion in our international reserve. It’s about 2.8, just less than three months of import cover. So, it’s a very big question that we’re still wrapping our head around whether China really matter because $1.7 billion in Ghana today is a big deal because the entire country’s reserve is about 5 billion.
So, it means if you have a debt stock with someone or a creditor, and it’s about $2 billion, it makes it a big deal. So, the major challenge right now is the debt servicing in dollars or in how’d you call it, if you want to put it, in foreign currency, which is the dollar we are using at the moment. That’s why it is so crucial that we have all external creditors on board to make sure that although we are able to go through the domestic debt restructuring, the external one is very crucial because any servicing isn’t going to be in our local currency, which is a cedi, but it’s going to be in dollars.
Eric: Let me understand something about the situation in Ghana because what you’ve described in Ghana regarding the repayment of debt in dollars and the devaluing local currency and that mismatch is not unique to Ghana. That’s a problem we’re seeing in Kenya, we’re seeing it in Ethiopia, in any number of African countries, if not most African countries. What happened in Ghana that made it unsustainable that it simply couldn’t handle the debt and it just became a point that they had to default on it? And the going from 10 billion to 5 billion in reserves. Give us a little bit of the background of what led us to this point.
Isaac: Right. So, if you look at Ghana’s current debt stock was around $55 billion. And you do look at this aggregation, you’ll see that within a span of just two years, we’ve added about a 300 million Ghana cedis to billion Ghana cedis to the debt stock which is about $30 billion. So, in terms of just last year alone, because of the depreciation that the local currency faced, we weren’t borrowing, but we ended up adding 90 billion Ghana cedis to the debt stock, which was, which was around $9 billion then. So, that should tell you that the kind of challenge we faced as a result of the exchange rate issues really, really affected our debt stock, where at a point we weren’t really borrowing, but just because the cedi was depreciating, it was just increasing our debt stock, especially at the international front where we had to settle debts in terms of other currencies other than the local currency, which is the cedi.
So, exchange rates was one of the major reasons why Ghana’s debt stock rose to at the level that made it so unsustainable, and that the finance ministry itself did a debt sustainability analysis and came out to say that at this point our debt levels are unsustainable and it’ll be very, very difficult to settle or to service debt, especially at the international front going forward in 2023, and probably 2024.
Eric: Yeah. And just to put that in context for the cedi, last year, the cedi was, not only did it have a bad year, it was literally the worst performing currency in the world among 148 different currencies, and it depreciated by 45%. So, that just added an enormous amount of pressure onto the debt servicing. The question for me, though, is was the problem most acute with servicing the commercial debt, the bilateral debt to people like the Chinese or the multilateral? Where was the problem most acute?
Isaac: Well, the problem has to do with the commercial debt. Ghana’s debt stock, if you look at the breakdown, for instance, we owe the Eurobond markets about $13 billion. And in the next five years, we have about 7 billion of these bonds maturing, and we have to pay. That is principal. On the side of interest payments and charges, we need close to $2 billion every year to make sure we service our debt. Aside from the Eurobond market, there’s this aspect where energy sector debts also adds up a lot to the debt stock. Averagely, we pay close to $1 billion every year as a result of excess capacity from some of these agreements we have with independent power producers. That’s one aspect as well. And so you have the Eurobond market taking so much, and then also the energy sector debt where we pay close to 1 billion every year as a result of excess capacity.
If you heard, just two or three days ago, we had independent power producers saying that they will not agree that government restructure about $1.4 billion of debt that government was owing them. They don’t want it restructured. They want their monies to be paid. And so basically that is it, where we also incurred an amount of 25 billion Ghana cedis. Around that time, it was close to 44 billion that we used to perform what we called a financial sector cleanup. So, the financial sector cleanup added a lot to the debt stock where we had to increase the debt to GDP ratio from below 70% to 80% at the dying embers of 2023. So, so much going to Eurobond markets where we owe them 13 billion. We pay so much for excess capacity resulting in energy sector debt. And then also the over $4 billion that we incurred or added to our debt stock as a result of the financial sector cleanup that we did in 2017.
Eric: Now, it’s interesting because I noticed that you did not mention any of the Chinese debt in those reasons, and in part because, as you pointed out, the Chinese debt really isn’t that much relative to the whole. But what’s interesting is that when you look at the discussion in a lot of Ghanaian media over the past year on radio, online, and on TV, there’s been a lot of discussion about Chinese predatory lending in Chinese debt traps. And the Chinese loans, they seem to loom large in the imagination of a lot of Ghanaian analysts, given the fact that it’s really not that big of a role. Why do you think that is?
Isaac: Well, so if you look at the Eurobond markets, for instance, all the commercial creditors, they have this large portfolios that’s… I mean, they can actually handle any defaults at the moment. So, it is probably easier to restructure or to carry a debt operation exercise with some of these commercial lenders who are in the international fund market. And then also we have the Paris Club who are also willing to come on board. But because of the precedent set when Zambia wanted to restructure their debt, the Democratic Republic of Congo as well, and if you analyze the situation, you’ll realize that it was only when the debts you owe China or the loans you have with China are interest-free loans that they are willing to forgive. Mind you, we are going to get $3 billion bill package from the IMF.
The MF wants you to restructure your debt because they want the fiscal space for them to perform the program that they want to perform and then also make sure your economy gets the best out of the program. So, they wouldn’t want to disburse monies to you to revamp your economy and then you use to settle our debt because I’ve given you 3 billion, you owe somebody close to 1.7 billion. And they do not want you to use a 3 billion as a means to service your debt. That is why at this point in time, every billion dollar is important at the moment. 1.7 billion previously wouldn’t have been a big deal, but now looking at the situation Ghana finds itself in, if we owe somebody 1.7 billion, it’s a big deal. But the reason why we have a lot of talks around this whole China loans is because of the precedence that has been set and the kind of templates created when Zambia wanted to restructure their debt.
Mind you, Zambia got a staff-level agreement in 2021, but had to wait up until I think August, 2022 before they got the board-level approval and China began to come to the negotiation table.
Eric: But the deal still isn’t done with the Zambians. That deal is stalled.
Isaac: Exactly. And if you look at China, for instance, they’re only willing to play ball when the loans in question are interest-free loans. If they’ll come to the table to restructure, then they’ll request that you extend the maturity periods or increase the interest rate on those loans. So, the courts actually are looking at some of these loans that we have with China, and they hardly disclose the terms and conditions of some of the loans. For instance, we took an amount of $2 billion from the Chinese Sinohydro deal. The agreement was that we give them access to our bauxite mineral to mine, and also we get $2 billion for road infrastructure. I am just looking at my data right now, and in the span of two decades, we’ve taken close to 41 million project loans from China, and we’ve been able to rack up about $5 billion from the Chinese market or from the Chinese banks or asset creditors, that they’ve given us about $5 billion over the span of two decades.
And another thing is that it’s so difficult to find China forgiving you your debt. And so if you look around the country over the span of two decades, for instance, Ghana, we’ve been able to enjoy only 201 million worth of debt forgiveness from China, where when we went through the same situation in 2023 where we were HIPC, we had some of these commercial creditors or the Eurobond markets or the West actually coming in to forgive us debt. Around that time was $3 billion that we got as debts cancellation and debts forgiveness.
Eric: Yeah, I get the sense that a lot of African governments, and what you’re talking about with the Ghanaians also seems to be the case, don’t seem to really understand that the Chinese don’t play by those rules. And I think that there was an expectation that because the West in the past under HIPC, which is the highly indebted poor countries, and that was a debt forgiveness, a cancellation program from a couple decades ago. When was that? That was what, 15 years ago?
Isaac: Exactly, about 15 years ago.
Eric: And there was this expectation that said, well, if we get into trouble, they’re just going to write off the debt, they’re going to cancel it. And the Chinese came up and said, “No, that’s not what we do. You’re going to pay the money. You borrowed the money from us, you’re going to pay it back. And it may take you longer to pay it back, but we don’t forgive the debt like the white people do.” But I don’t get the sense that there’s a fully deep understanding of that in a lot of finance ministries in places like Accra. I still think that they think they’re dealing with the Europeans and the Americans when they deal with the Chinese, and they don’t fully understand sometimes that the Chinese are playing by a very different set of rules.
Isaac: So, there are so many templates across the globe or even here in Africa that we can actually learn from. Remember when Congo wanted to restructure a debt burden of, I think it was around $1.6 billion.
Eric: That was Congo Brazzaville, right?
Isaac: Exactly. Congo Brazzaville. When they wanted to restructure their debt, they went to China because China was one of their biggest creditors. They were restructuring a debts burden of 1.3 billion. China told them, “We can’t give you a total write-down. All we can do is to extend the maturity period and then also increase the interest rate on the loan.” So, at the end of the deal, instead of Congo Brownsville having a debt burden of 1.3 billion, the restructuring actually took their debt to 1.6 billion, costing about a 23% rise in their public debt stock or the debt that they had with China. So, China is only willing to play ball if usually the loans involved or in question are interest-free loans. But if they are tracked some level of interest, it would be very, very difficult to enjoy a debt forgiveness from them. They’re completely different from the west.
Eric: They are completely different. And it’s interesting because we talked to a Beijing-based lawyer who works on a lot of these loans, and he said 15 years ago when he first started going to China, and we interviewed him on the show a couple times, he said that Africans told him over and over again, “We don’t want any more charity, we don’t want any more aid, we don’t want any more that stuff that we’ve done with the West. We want to do business.” And he said, “You know what? That’s great because we don’t do aid, we don’t do charity — we do business. Here’s the contract, signed here, here, here, initial here, here, here. And there you go.” And what we found in places like Congo Kinshasa in the Democratic Republic of Congo, or in Kenya with the Standard Gauge Railway contract is that, and we also heard in Uganda as well that the finance minister said they didn’t understand the contract for the Entebbe airport deal.
That they didn’t fully understand who they were dealing with. And they signed these contracts without full comprehension and legal review of them, and now they’re stuck. And I just thought that was really interesting and this is what business is like. This is not charity for the Chinese, okay?
Isaac: It’s not. The Chinese are in to do business. And if you look at the number of infrastructure projects they are doing across the continent, it tells you that they are in for business. For instance, 2019 Ghana took about six different loans from the Chinese, and all were for infrastructure purposes. And these are loans that they come with so many collaterals where we have to use some of our resources as collateral or security. For instance, when we took the loan to construct 11 coastal efficient landing sites in Ghana, we had to use our oil export as the resource security. When we also had to take a loan from China to do the Accra Intelligent Traffic Management System and road completion, we have to still use our oil as security.
Again, in the same 2019, when we took a loan to do an integrated national security communication enhancement network, we had to use our bauxite as security. And cocoa is even part, where in 2017 or somewhere like that, the Bui Power project, we had to use cocoa export as security. So, the Chinese are different. They are here to do business. When they’re giving you the money, they make sure that there is something in place that in case you default, they can actually use as a security, and usually they tend to go in for either your minerals or some of your cash crops.
Eric: But that’s not unreasonable, though, is it?
Isaac: Well, they’re here to do business.
Eric: If you’re going to borrow the money, you got to have some way to pay it back. And if you can’t pay it back, I’m going to take your oil and sell that to pay it back. When I borrowed money from the bank to buy my house, the bank said, “If you don’t pay it back, I’m going to take your house, and I’m going to sell your house and that’ll settle the loan.” So, it doesn’t seem unreasonable that the Chinese are using that kind of collateral.
Isaac: But just like you said, we forget that the Chinese are different from the West. So, we probably are taking the same attitude we had with the West to this negotiation table. And for the Chinese, they wouldn’t attach any sort of list of rules that you have to follow — make sure you do this, make sure you do that, which sometimes we feel their sort of austerity measures or they are too much to follow. The Chinese will just come in straight — what do you want? You said you want 3 billion, you want 4 billion, we are willing to give to you. In return, we also wanted this from you. And if you fail to pay the loans, then this is what we want. We can’t give you 100% restructuring. All we can do is to, probably when you’re in distress, extend the maturity period or try and add to the interest that we are already charging you.
And at the end, you’ll realize that the debt that you have will be completely or significantly higher than what you used to have. So, whenever you enter a restructuring decision or agreements with the Chinese, you’ll realize that they are not ready to lose. They’re not ready to truncate your debt. They’re not ready to bear your sins or carry your sins. They want you to carry it yourself. Okay, so you can’t pay in two years, can you pay in five years? Can you pay in seven years? And if you’re paying in seven years, come on, there’s inflation. So, if I was charging you 7% or 9%, now I’m going to charge you 15%, and I’ll give you more time to pay. That is what the Chinese do.
Eric: Yeah, and going back to the first thing you said about the cedi, these loans are in U.S. dollars, and so you’re having to burn your Forex reserves to repay these loans. This is the problem in Kenya right now is that the Kenyans asked for another deferral. The French and the Japanese, the two other largest bilateral creditors said, yep, no problem. Their amounts are pretty small. The China Exim Bank gave a six-month deferral on the Standard Gauge Railway loan, and then the Kenyans came back and said, “We need a little bit more time.” And China Exim said, “Sorry, nope, you got to pay.” And this is hardcore. I mean, this is really hardcore. So, I think the lessons here for a country like Ghana, the next time they go into these deals, and this is what I’m hearing from you, number one, you better know what you’re signing when you sign on the dotted line with the Chinese.
You better understand what you’re signing. And number two is that it might be better if you don’t agree to these nondisclosure clauses so that you can have your civil society, people like you can sit and look at the loan contracts and say, “Mr. President, this is a bad deal.” And in a democracy, civil society and journalists and people like you have a role to play. But you can’t do that because you can’t see any of these contracts. Is that correct? They’re all wrapped up under nondisclosure agreements, correct?
Isaac: Very difficult to get the details of most of these Chinese loans that we’ve taken. All we know is that Ghana signed a Sinohydro deal with the Chinese. You’re going to give us 2 billion and we are going to give them our bauxite. But the conditionalities or some of the clause in the details of the deal itself, we don’t really get. And we’ve already suffered examples when we phase the protracted power outage where we signed some of these agreement, power purchasing agreements with independent power producers. We all know how renegotiation of some of the deals saved the country about $13 billion. It was because some of these loans were in the public domain and the civil society were able to criticize some of these agreements, and they called for renegotiations and saved the country about $13 billion. Had it not been that, I’m sure we would’ve been swallowed by some of these debts that we’re waiting to actually come and devour us as a country.
We are not able to raise much in terms of revenue, and every day, every year we end up expanding our budget deficits. For instance, this year we are projecting to spend close to 2 billion Ghana cedis, which is about $20 billion, and also raise just 140, which is around $14 billion. So, the difference is about 60 billion Ghana cedis, $6 billion. Where are we going to get the money to finance such a high-level deficit? These are some of the reasons why government is actually sometimes are pressured to enter into some of these loan agreements with the Chinese and other people who come in, and we are not able to do proper scrutiny. We just enter into an agreement with them because we feel getting monies from such people, the Chinese and such agreements, it’s so easy.
All you need is these are the papers. You want to do business, so sign. I’m willing to give you the money. Unlike the IMF loan, unlike some of the Eurobond loans that we get that the details are everywhere then for people to actually look at them and criticize. You know who is going to be your financial advisor, the legal lead on some of these loans. And when we go in for some of the loans, the documents are there for people to peruse. But with the Chinese, it’s different and it’s difficult getting the details in some of these loans we signed with China.
Eric: Yeah, but let’s not forget that it takes two to tango, it takes two to dance here. So, there’s as much burden on the Chinese for the non-disclosure agreements as there is on the Ghanaians who signed those deals. They didn’t need to sign those deals. No one put a gun to the head of the Ghanaian president or finance minister to sign a deal with a non-disclosure agreement. The burden lies equally on both sides here in that respect. And I just want to get your take on this Sinohydro deal. You’ve mentioned it a couple of times. This is actually a point of contention between the Ghanaian government and the IMF. The IMF is saying that this $2 billion deal should count as part of the country’s debt. The Ghanaian finance ministry is actually saying no it shouldn’t because there’s actually no cash exchanging hands here.
The Chinese and Sinohydro are building infrastructure, and then in exchange, they’re extracting bauxite, but there’s no exchange of money on the books anywhere here. So, it’s not a cash yield. That’s one of the reasons why the Chinese overall debt level seem rather low at 1.7 billion. That does not include, as far as I understand, and maybe you can correct me if I’m wrong here, the $2 billion Sinohydro deal.
Isaac: Very true. It doesn’t. And most of the project loans we’ve taken from China, just like I said, they would want you to use your resource as a security rather than… In this kind of debt, you’re not exchanging money directly. But mind you, if you also extract the bauxite and you export, you can also get foreign liquidity. So, there’s an opportunity cost here. Although you are not paying money directly, how about what are you also losing when the price of bauxite also go up? And then just like the way we are able to export gold and get the revenues directly. And it’s so difficult understanding why we use, we’ve actually collateralized almost all our major resources in terms of using them as collaterals for getting loans. And the bauxite that we actually discovered; we can get a lot of money from it.
But because government has been so reckless in their expenditure, they end up inflating their expenditure, and you realize that they not get anywhere to find money to finance this huge deficit. So, they end up looking for money everywhere, anywhere, and once they get the money and they feel it’s so easy getting it, they are willing to give in. And just like you said, nobody will point a gun to your head and say, “Sign this deal.” But once you know that at the end of the year or every six months, semi-annual, you are not obliged to pay any U.S. dollars and you’re just supposed to give the Chinese maybe access to your bauxite or some of your natural resources, you may not quantify what you are losing in terms of the opportunity cost. What if you yourself you had exported these minerals, how much would you have received and how much would they have helped you increase in your international exchange reserves? We just say that because no money is being exchanged, we feel we are not losing much, but in real terms, or indirectly, we are losing so much, and that is why we are not able to increase our international reserve to the level that we need for us to get stability for our local currency.
Eric: I guess I’m a little bit perplexed by all of this because we saw what happened when Angola signed over big chunks of its oil reserves to the Chinese, and they literally came up with a name for this, it was called the Angola Model. And the Angolans, about 10 years into the deal said, “You know what? This isn’t working for us because we were doing an oil for infrastructure deal,” where they committed, I think something upwards of 75% of their oil reserves and their oil sales went to the Chinese on a non-cash basis. So, what ended up happening was that Angola’s economy got starved for cash, for liquidity, so inflation skyrocketed. Now they got some infrastructure out of it, but that didn’t help with the inflation problem.
The fact that the Ghanaians did not look at what happened in Angola to see that leveraging so much of your natural resource will starve your economy and rob you from the opportunity of taking advantage of higher commodity prices is kind of perplexing to me because we literally had a case study out there that they could have followed. It just seems weird to me.
Isaac: Yeah, there’s a template for us to follow, but just like I was saying, when you are in a big dilemma or when you’re in a difficult situation where you’ve borrowed so much that you need almost $2 billion every year to settle just interest payments, you are willing and ready to sign any deal that could bring you foreign liquidity or exchange for you to be able to settle some of your debts because you know that once you don’t do that, one, you’re not really getting so much from exports because you’ve actually given out most of these minerals and you’ve collateralized them, and although you get the revenues, you end up using them to pay interest on loans. So, because of the high-level debt servicing we carry out every day, of which most of it are in external currencies or in dollars, where we don’t print dollars here in Ghana, if they’re in cedis, we can issue bonds or treasury bills, borrow from the local markets and then use to pay.
But when it comes to servicing of external debt, we always find ourself in a very tight corner. And because of the high demand for liquidity where each and every year we spent close to 4 billion importing refined crude, where ourselves, we actually have raw crude here, but because we’ve not been able to put structures in place to refine the crude here, import bill always increasing because of some of these pressures we find as a result of the high-level imports we do, where we spend as much as close to $4 billion every year to make sure we bring in refined crude. So, the kind of exchange rate situation we find ourselves in is as a result of the fact that we do not have the reserves to give us the fiscal space to carry out some of these things. Just a reserve of a little over $5 billion at the moment, which can only cover less than three months of imports cover.
If the government finds it’s not able to do an external debt restructuring and would have to pay the $10 billion allocated for interest payment this year, where are we going to get that money?
Eric: It’s just not going to magically appear. Right?
Isaac: Exactly. So, we find ourselves in a very tight situation that always compares government to sign some of these deals because they feel the Chinese will bring in $2 billion cash in hand, we will be able to use to settle some of these loans that we owe, and the kind of pressure on the foreign liquidity we need every year to make payment, to bring in pharmaceuticals, to import refined crude and so many other things, the pressure alone is a major reason why we sign some of these deals. It’s difficult, but I feel that we find ourselves in a situation where we are in a vicious cycle where we are not able to get out as a result of government recklessness in actually revenue generation and then also expenditure. We end up giving so many foreign companies tax exemptions, and we are not able to maximize revenue collection, and every year, we end up ballooning our deficits.
Eric: Very quickly before we go, because you’ve been very generous with your time, and I know you have a very busy day ahead of you here, I just want to get your take on the standoff that’s been playing out in Zambia between China and the multilateral development banks. Now the Chinese are saying that they don’t want to move forward with debt restructuring unless the World Bank and the IMF agree to take losses on their loans, those known as haircuts. And the IMF and the World Bank are saying, “You know what? Uh-uh, we don’t do that. We take losses on the front end in terms of borrowing cheap and we lend cheap to affordable rates to developing countries. If we take losses on our loans, that’s going to affect our credit rating. So, we’re not going to play that.”
What’s happened is that two years into this process, Zambia is still stuck. Sri Lanka got out of it, but mostly because of geopolitics, because China’s main rivals ,the U.S., India, and Japan were all involved in Sri Lanka, and I think that was a very unique situation here. But in Africa, we’ve seen no progress. Now, what makes Ghana think that it’s going to succeed where Zambia has so far failed? Why do you think that the government is so confident that they’re going to get the IMF deal and the Chinese are going to play ball when they haven’t played along nicely with the IMF and the World Bank in Zambia?
Isaac: Well, so in our situation, just like we were discussing, most of the loans we owe China, if you look at how much you’re supposed to service every year, although the total debt stock 1.7 billion. The amount you’re supposed to pay to the Chinese government in terms of interest payment and then even principle is not as high as in Zambia situation. Zambia has majority of the external debt owed to China, just like the way… In terms of bilateral level, they have majority of their debts owed to China. But in our situation, we feel that the interest rate we have to pay, the loan servicing to the Chinese government is not as high as Zambia’s situation. And because we already have some of these Sinohydro deal, so many other things here and there where we’ve signed so many project loan agreements with China where we have to use mineral resources as securities or collateral, we feel that we can find ways and means to say, “Come to the table, let’s negotiate.”
“We are willing to probably give you a percentage of our crude oil that we actually mine here and then also probably our gold,” because we feel we have mineral resources. We have cocoa, we have gold, we have bauxite, and just recently we’ve discovered lithium. And so, we feel that we have an advantage where we can use our minerals as collateral. So, we can say agree that we restructure, so we are not going to demand foreign liquidity to settle you, but we feel that you can come in and use a portion of our gold, a portion of our lithium, whatever minerals that we have, you can use it. And that will be a way to make sure that you don’t lose. But in Zambia’s situation, it’s difficult. But we feel we have this leverage where we can use our resources or our minerals as securities. They may not disclose this to us, but I feel that the Chinese will not just agree to say, “Come on, let’s go ahead and restructure “1.7 billion.
At least something has to give. They will not come to the negotiation table if they are not aware that there is something that they can use as a cushion. To me, I feel that because we have this mineral resource leverage, we feel that we can use that during the negotiation, then China will be willing to play ball because already we’ve given them access to our bauxite as a result of the Sinohydro deal. So, maybe if we’re giving them a certain quota for 2 billion, for restructuring, we can increase that quota so that they can agree to play ball for us to restructure the 1.7 billion loan that we owe them. So, to me, that’s the advantage that I feel that Ghana has over Zambia, where they find themself in a very tight situation. For the Chinese, something has to give. If you do not have anything to give in return for a restructuring, then be ready to either extend the maturity period or pay high for interest.
Eric: But one way or another, you’re going to pay, right? You are going to pay, one way or another. That’s the way it is.
Isaac: Absolutely. So, in essence, we’re just going to agree that you extend the maturity period. So, as I was saying, you’re supposed to pay, let’s say $280 million this year. Don’t worry. Don’t pay this year. You can pay in the next three years. But once you are paying in the next three years, give us something in return. Give us access to maybe a bigger quota of your bauxite or give us access to your crude oil, or your give us access to your cocoa or your gold. Mind you, we have this illegal mining situation at [inaudible 0:41:34] where we have these Chinese coming in to, illegally, mine gold here in Ghana, and they’ve ended up destroying most of our water bodies, and we are struggling with that situation here currently in Ghana. So, well, at the moment, I feel that will be the only thing that governments can use as a collateral. And that’s why they are so confident that China is willing to come on board for another debt operation.
Eric: Okay. Well, we’re going to follow up with you in a few months just to check in to see how everything is going. Everybody, the article is Ghana’s external debt restructuring, does China matter? It’s written by one of the smartest guys in the business as you can hear. Isaac Kofi Agyei is the lead data and research analyst at the popular Ghanaian radio and TV network and online news site, Joy News. So, we are just so thrilled that you took some time to explain this to us. If people want to follow what you’re reporting, where can they find you? Are you on Twitter?
Isaac: Yeah, I’m on Twitter with the same name, Isaac Kofi Agyei; on LinkedIn the same, Isaac Kofi Agyei, and then also probably on YouTube, Isaac Kofi Agyei. But yeah, predominantly on Twitter, Isaac Kofi Agyei.
Eric: I’ll put links to all of that in the show notes. And I want to thank you for joining us. And then I want to let everybody know that Cobus, again, will be back with us next week for another edition of the China in Africa Podcast. So, for Isaac in Accra, I’m Eric Olander — thank you so much for listening.
Outro: The discussion continues online. Tag us on Twitter @ChinaGSProject, and visit us at chinaglobalsouth.com. If you speak French, check out our full coverage at projetafriquechine.com and AfrikChine on Twitter. That’s Afrik with a K. And you’ll also find links to our sites and social media channels in Arabic.
