IMF to scrutinise impact of $3b Chinese loan on Ghana’s public debt management

The International Monetary Fund (IMF) says it will to assess projects in Ghana to be undertaken with the $3 billion China loan facility recently approved by parliament.

The Fund wants to know the impact of the financing on the country’s macroeconomic stability and the sustainability of public debt.

Ghana’s total public debt at the end of July 2011 is GH¢21.6 billion, equivalent to 40.5 per cent of GDP, up from 38.1 per cent at the end of December 2010, according to the Bank of Ghana.

The loan agreement signed between Ghana and the China Development Bank (CDB) sparked a lot of controversies in the country with the opposition New Patriotic Party (NPP) raising questions about the terms of the agreement.

The NPP held the view that the loan will cost the country a lot of money, even though it was not against the projects that the loan would be used for.

The IMF observes, “A large financing package has been secured on non-concessional terms, and it is important to assess carefully the costs and benefits of the financial arrangement and underlying projects. IMF staff has offered to work closely with the government on assessing the projects’ impact on macroeconomic stability and the sustainability of public debt,” said the IMF in a statement September 2, 2011.

It adds “This assessment will also hinge on the government’s policy commitments in other areas, both in the 2012 budget and the medium term.”

An IMF team, which recently held discussions with managers of the Ghanaian economy, noted that the government has cleared a sizeable part of its previous arrears and had contributed to high non-performing loans in the banking sector.

To avoid a re-emergence of arrears, the team indicates it will be important for the country to “continue strengthening public expenditure management systems; ensure that energy and other regulated prices are set at cost-recovery levels; and keep the overall spending envelope at a sustainable level.”

The CDB will provide financing for 85% of total project costs, with the remaining 15% to be funded by the government of Ghana, according to the framework agreement signed between Iiang Chaoliang, President of the China Development Bank Corporation and Ghana’s Deputy Finance Minister Fifi Kwetey on September 20, 2010

The following are the projects under the $3 billion facility:

• Western Corridor Infrastructure Renewal Project – Railway Rehabilitation and Modernization Component (Estimated Allocation of $450-500 million).

•    Western Corridor Infrastructure Renewal Project – Takoradi Port Phase 1 Retrofit/Rehabilitation (Estimated Allocation of $150-200 million).

• ‘Sekondi Free Zone’ Project (Estimated Amount of $ 100 million).

•    Accra Plains Irrigation Project – Phase 1: 5000 ha. (Estimated Amount $100 million).

•    Coastal Fishing Harbours and Landing Sites Project (Estimated Amount of $150-250 million).

•     Eastern Corridor Multi-Modal Transportation Project – Lake Volta Facilities Component (Estimated Amount of $150-500 million).

•    Western Corridor Gas Infrastructure Project

• Collateral infrastructure development projects in the Western Corridor ‘Oil Enclave’.

• Accra Metropolitan ICT-enhanced Traffic Management Project

• SME Projects Incubation Facility: (Estimated amount of $100 million).

By Ekow Quandzie