The International Monetary Fund (IMF) has disclosed information regarding Ghana’s four collateralized loans from China, highlighting the potential risk of losing a portion of the country’s mineral resource revenue and future electricity sales.
For Ghana, Chinese loans have served as a dependable source of funding for significant projects since the year 2000. Over the course of two decades, Ghana has accumulated nearly $5 billion through approximately 41 Chinese loans.
Following years of extensive borrowing, Ghana finds itself trapped in debt and currently navigating through its most severe economic crisis in a generation, with an external debt portfolio exceeding $30 billion.
Under this loan agreement, if Ghana fails to fulfill its debt obligations, China retains the right to utilize revenue generated from Ghana’s oil, cocoa, bauxite, and even electricity sales to settle the debt.
In debt negotiations occurring across the developing world, China often assumes a pivotal role at the negotiation table.
Despite being the world’s largest bilateral lender, China’s lending policies and its approach to renegotiating with financially distressed borrowers remain opaque.
In 2022, the world’s poorest countries, as reported by the World Bank, confronted a substantial burden of $35 billion in debt-service payments to both official and private sector creditors.
Notably, China accounted for 40% of this amount, demonstrating its significant role in the debt obligations faced by these nations.
“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 explained.
According to them, “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.”