China could take over Ghana’s mineral resource revenue and electricity sales – IMF warns

Date: May 23, 2023 – The International Monetary Fund (IMF) has shed light on the potential consequences of Ghana's four collateralized loans from China, revealing that the country could risk losing parts of its mineral resource revenue and electricity sales in the future.

Over the past two decades, Chinese loans have served as a reliable source of funding for major projects in Ghana. With at least 41 Chinese loans accumulating to nearly $5 billion since the year 2000, Ghana has heavily relied on this financial support.

However, the consequences of this borrowing spree have caught up with Ghana, as it finds itself in a debt trap and currently facing its worst economic crisis in a generation. The country's external debt portfolio has now exceeded $30 billion.

The loan agreements stipulate that if Ghana defaults on its debt obligations, China has the right to utilize proceeds from Ghana's oil, cocoa, bauxite, or electricity sales to settle the debt.

In debt negotiations involving developing nations, China often holds a significant position at the negotiation table. Although being the world's largest bilateral lender, China's lending policies and renegotiation practices remain opaque.

According to the World Bank, in 2022, the poorest countries on the planet faced $35 billion in debt-service payments to official and private sector creditors, with China accounting for 40% of the total.

Investigations conducted by JoyNews reveal that Ghana has entered into at least eight collateralized loans from China, employing various mineral resources as security against default. As of the end of 2022, Ghana owed China a total of $1.9 billion, with $619 million attributed to collateralized loans.

The IMF reports that Ghana's collateralized debt, as of the end of 2022, was entirely held by China, stemming from four loan agreements signed between 2007 and 2018, amounting to $619 million. These loans were collateralized against commodity production (such as cocoa, bauxite, and oil) as well as electricity sales.

The IMF emphasizes that revenue streams from statutory funds should not be used as collateral to issue debt, and no objection certificates will be issued by the governing authority for such purposes.

Furthermore, the Fund has requested that the Ghanaian government provide corresponding loans or derivatives for all encumbered assets used as collaterals.

The implications of Ghana's reliance on collateralized loans from China underscore the need for greater transparency in lending policies and debt negotiations. As Ghana grapples with its economic crisis, it is crucial for the country to carefully manage its debt obligations and explore sustainable financial strategies to safeguard its economic future.