China plays hard ball on debt negotiations — IMF deal in limbo
There are growing fears that the country’s US$3 billion multi-lateral bailout may delay as China’s long-held negotiation manoeuvres come to bear on the economy, experts have warned.
With the International Monetary Fund (IMF) board set to meet in April for the yearly spring meetings, China has posted its expected meeting with Ghana to late March, a situation that has sent shivers down policymakers as they sweat under a possible protracted negotiation going all the way into April.
With China accounting for about 30 per cent of the country’s US$8.5 billion external debt, experts say it may derail the country’s quest to secure an IMF deal, a situation they believe may lead to dire consequences for the economy.
Ghana’s economy has been faced with severe challenges since last year, with its debt hitting GH¢575 billion, representing over 90 per cent of Gross Domestic Product (GDP).
The government officially approached the IMF in July 2022 for a US$3 billion bailout programme to save the sinking economy.
In December 2022, the government reached a staff-level agreement with the fund and is now left with board-level approval before it can access the US$3 billion support.
However, the board-level approval is hinged on the country’s ability to restructure its domestic and external debt.
A domestic debt exchange programme, which was announced in December, was met with stiff opposition from stakeholders. But after much deliberation, the government finally managed to reach an agreement with over 80 per cent of its domestic debtors.
What is, therefore, now left is the restructuring of the country’s external debt.
So far, the Paris club, the US government and the German government, who all form part of the country’s bilateral creditors, have expressed their willingness to agree to some form of debt restructuring.
With China flexing their negotiations muscle, analysts and economic watchers are worried that the cedi will take a beating, as the signs have begun to crack on the wall, with the local currency beginning to wobble.
China, the biggest hurdle
At a recent event in Accra, the German Ambassador to Ghana, Daniel Krull, called on Ghanaians with strong business ties with China to use their relationship to encourage and convince China to sit with other bilateral creditors of Ghana to agree on a package to help Ghana out of its current economic crisis.
"Time is of the essence. Time is running out. Without an agreement by Ghana's bilateral creditors, the IMF’s package will be difficult," he said.
The German Ambassador also called on Ghanaian Members of Parliament who were engaged with China to encourage China to sit with other bilateral creditors of Ghana to finalise arrangements to help Ghana return to its economic growth path.
China is Ghana's largest bilateral creditor, but Mr Krull said, "it is so far not fully supporting the setting up of the creditors’ committee where all the creditors will sit down and agree on a package for Ghana."
Speaking in an interview with the Graphic Business, the Head of Research at the GCB Capital, Courage Boti, said the biggest challenge at this point is China, who are not too willing for a debt restructuring conversation at this point.
He said even if they finally agree, he believes it would not be in the form of debt forgiveness but in the form of some debt re-profiling or maturity extension.
“The government’s plan at this point is to hold private meetings with China and cut a deal with them. And the hope is to get China to agree to a deal, then they can approach the Bilateral Creditors Committee (BCC) as a whole and try to push through a deal that can make Ghana get board-level approval from the IMF.
“Once we reach a deal with the bilateral creditors, we can now approach commercial lenders as well with a similar deal because that is what the common framework says. But we must navigate China first,” he explained.
Big task to get IMF deal
Mr Boti said as things stand now, it would be a huge task to secure an IMF deal by end of March as projected by the government.
“I even hear the planned engagement with China is postponed until later in March due to some ongoing congress. Of course, they will be engaging virtually, but the face-to-face meeting can’t happen until later in March. So, the end of March timeline is a big stretch.
“I won’t say it is impossible, but it looks unlikely. The quality of engagement with the creditors at this point will also determine whether we can meet the March deadline,” he stated.
He said considering the country’s fiscal situation, reserve position and economic challenges, it needs an IMF deal as soon as possible.
He noted that should the country go beyond the first quarter without an IMF deal, the ramifications would become much direr than they are now.
During a state visit to Ghana last month, the Federal Minister of Finance for Germany, Christian Lindner, said Ghana’s plea for debt forgiveness could harm the country’s credibility to its creditors globally if not done well.
He said for the country to achieve its economic development goals, it would have to return to the international capital market for assistance, hence the need to maintain the country’s credibility on the market.
“We have a rule-based international order to guarantee financial stability globally and this is why we need legal proceedings, rule-based procedures when it comes to the restructuring of debts,” he stated.
He said the country getting debt relief would be a gesture of good faith bilaterally, but it could harm in the long-term.
But Mr Boti said the debt forgiveness conversation was with bilateral creditors and not commercial creditors and as such, would not, so much, affect the country’s credibility on the international capital market.
“Some of those debts are grants and some are concessionary loans with very low interest. So, you could push for debt forgiveness from them and that is fine, but you can’t be asking commercial creditors for debt forgiveness at this point,” he noted.