Ghana likely to benefit from China’s Africa-debt forgiveness; re-channeling of $10bn IMF funds to Continent

Ghana could possibly benefit from China’s decision to forgive 17 African countries indebted to it.

China, according to reports by Bloomberg on Tuesday, August, 2022, is willing to forgive 23 interest-free loans to 17 African countries.

In addition, it is willing to redirect $10bn of its IMF reserves to the nations on the Continent.

Although the 17 African countries were not named, Ghana is expected to be among the list, as the country is believed to have high debt exposure to China.

Ghana has had a long-standing relationship with China with Ghana taking bilateral loans from China.

Currently, there is no official data indicating the quantum of loans Ghana owes China – this can be attributed to China’s preference to not disclose details of concessional loan agreements with it debtors.

The cancelation of debt by China was announced by Foreign Minister Wang Yi, in a meeting last week at the Forum on China-Africa Cooperation.

In announcing the debt cancelation, Foreign Minister Wang Yi didn’t provide details on the value of the loans which he said matured at the end of 2021.

Since 2000, Beijing has announced multiple rounds of debt forgiveness of interest-free loans to African countries, canceling at least $3.4 billion of debt through 2019, according to a study published by Johns Hopkins University School of Advanced International Studies.

The cancelled debt was limited to mature, interest-free foreign aid loans, with Zambia receiving the most cancellations over that period.

However, the vast majority of China’s recent lending in Africa such as concessional loans and commercial loans have never been considered for cancellation, the report added, though some of it has been restructured.

Surging inflation has triggered a wave of interest-rate increases by central banks worldwide, including the US Federal Reserve, which drives up the costs of sovereign loan repayments.

Meanwhile, developing nations have amassed a quarter-trillion dollar pile of distressed debt that threatens to create a historic cascade of defaults by economies that were struggling even before the COVID-19 pandemic.

Beijing, which has come under criticism for its lending practices to poorer nations, accounts for almost 40 percent of the bilateral and private-creditor debt that the world’s poorest countries need to service this year, according to the World Bank.

It has helped forge recent debt-relief agreements, participating in the Group of 20 suspension of repayments during the pandemic.

The announcement last week highlights China’s efforts to build ties with developing nations, particularly through its Belt and Road Initiative. The US and China are competing for influence around the world, and Beijing’s announcement comes at a low point in ties between the two superpowers, with tensions rising following a visit to Taiwan by US House Speaker Nancy Pelosi earlier this month and Beijing’s support of Russia amid its invasion of Ukraine.

“What Africa wishes for is a favorable and amicable cooperation environment, not the zero-sum Cold War mentality,” Mr Wang said.

The IMF’s record $650 billion resource injection last year was intended to help its members weather the effects of the outbreak, but fund chief Kristalina Georgieva has urged richer nations to do more by lending their reserves to poorer ones.

China received the equivalent of about $38.2 billion through the IMF’s recent injection of special drawing rights, which work like an overdraft and come with no conditions. Wang said that China is willing to channel $10 billion worth of China’s SDRs through two of the fund’s trusts set up to help poor and middle-income nations.

Since the Forum on China-Africa Cooperation took place in Senegal in November 2021, Beijing has delivered $3 billion of $10 billion of credit facilities pledged to African financial institutions, Wang said in the speech. In addition, this year China has agreed to tariff-free entry to 98 percent of exports from 12 African countries and has provided emergency food assistance to Djibouti, Ethiopia, Somalia, and Eritrea, he said.