IMF Unsure if $2bn China Deal Is Loan Or Barter

IMF Unsure if $2bn China Deal Is Loan Or Barter

The Akufo-Addo government has left the International Monetary Fund confused about whether a $2bn China deal constitutes a loan.


The classification is important because Ghana's debt stock of at least 120bn cedis will shoot up if the China deal is classified as a loan. It would also raise questions about Ghana's debt sustainability.

The government has insisted the deal, in which China will provide $2bn worth of infrastructure in exchange for equal worth of bauxite, is barter, not a loan.

The Minority has insisted this is a loan.

"Let nobody attempt, through deception, to say that this is not a loan," Minority leader Haruna Iddrisu said during the Parliamentary approval of the Master Project Support Agreement (MPSA) covering the agreement.

Dissatisfied with government's explanation, the Minority petitioned Ghana's economic policy supervisor, the IMF and asked for clarification.

The IMF Country Representative Natalia A. Koliadina has replied the petition from Haruna Iddrisu and Minority spokesperson for Finance Ato Forson.

"Given the complexity of the transaction, I am unable to answer your questions immediately", the response dated August 30, 2018, reads.

The IMF Resident Director said the Fund will be discussing the financial agreement at its next meeting where Ghana's IMF deal will also be reviewed.

The confusion arises from a difficulty in determining whether the agreement falls under the IMF's definition of loan. The technical memorandum of understanding the IMF has with Ghana confines government to how much it can borrow.

The IMF on its website, says the term “debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of financial and nonfinancial assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:

"(i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements)."

The IMF is under pressure in the US to reign in African countries from the influence of China which has been splashing out badly needed cash on African countries in exchange for mineral resources.

The Chinese president, Xi Jinping, announced China will spend as much as $60bn (£46.8bn) in investment, aid and loans in Africa over the next three years.

An article on US media outlet CNBC noted that "by pouring money into Africa, China has seen an opportunity to both gain political influence and to reap future rewards in a continent whose economies are predicted to boom in the coming decades".

In the case of Ghana, China's Sinohydro Corporation Limited would pre-finance the construction of roads, hospitals, interchanges, the works - all at the cost of $2bn.

Government has a repayment period of 12 years, with three years grace period.

Only the payment is in raw, core bauxite ore at an interest rate of between 2.8 per cent and less than 3.3 per cent per annum on the London Interbank Offered Rate (LIBOR).

President Nana Akufo-Addo is in China to finalise the agreement.


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