Ghana’s Collateralized Loans from China Jeopardize Energy Sales and Mineral Resource Earnings
The International Monetary Fund (IMF) has provided information regarding how Ghana’s four collateralized loans from China have put the government at risk of losing future energy sales as well as a portion of the earnings from its mineral resources.
Since the year 2000, Ghana has relied on Chinese loans as a consistent source of finance for large-scale projects. Accra has accumulated close to $5 billion from at least 41 Chinese loans over the course of two decades.
With a current external debt portfolio surpassing $30 billion, Ghana is presently debt-trapped and enduring its most significant economic crisis in a generation due to many years of almost unrestrained borrowing.
China looks to be the most significant participant at the negotiating table in many debt talks taking place in developing countries. Despite being the biggest bilateral lender in the world, it remains secretive when it comes to its lending practices and how it renegotiates with troubled clients.
According to the World Bank, the poorest nations on Earth would have to pay $35 billion in debt service to public and private creditors in 2022, 40% of which would be paid by China alone.
The West African country has at least eight Chinese collateralized loans with a variety of minerals serving as security against failure. Ghana owes China $1.9 billion as of the end of 2022, of which $619 million was in the form of secured loans.
According to the Fund, China owned all of Ghana’s collateralized debt as of the end of 2022. This is related to four loan agreements that were signed between 2007–18 and totaled US$619 million to fund infrastructure projects. These loans have commodities output (cocoa, bauxite, and oil) and electricity sales as collateral.
According to the loan arrangement, China has the power to take Ghana’s oil, cocoa, bauxite, or even electricity sales earnings to pay off the debt should Ghana fail to honor its financial obligations.
“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 stated.
