The German Government has conditioned the Ghana Government to as a matter of urgency outline and implement measures to address the hefty annual energy sector losses and domestic revenue mobilisation efforts.
The Germans, have shown willingness to join Ghana’s external debt restructuring arrangement and also talk to China if only managers of the economy can address the above challenges as soon as possible before they get involved.
According to the German Ambassador to Ghana, Ghana has the lowest one of the lowest tax to GDP ratios, not even 13%. Also, they are astonished with the annually energy sector new debt of US$1.5 piled up. The European country gave the conditions as a reaction to follow-up of President Akufo-Addo’s call on German Finance Minister, Christian Lindner, to “encourage” China to accept Ghana’s proposal for debt relief with its largest external creditor, China.
“Let me point to three elements. The biggest loss maker in Ghana is the energy sector. This in this sector alone, each year, 1.5 billion new debt is piled up. So if that is not solved and you can ask the IMF for $10 Billion, you still will not solve the problem in the medium term”, German Ambassador to Ghana, Daniel Krull, in an interview said. that his country is willing to help only if certain conditions are met.
“So there has to be an answer in Ghana to the 50% technical and non-technical losses in the energy sector. If that is not resolved, I don’t see how we can make find a sustainable solution for the financial problems of the country”.
He added “the second part is on the other side of the budget and that is the the revenues. Ghana has the lowest one of the lowest tax to GDP ratios, not even 13%. So we have been cooperating with the local authorities and setting up a very smart system of property tax collection. So I think that is an important way forward and this has to be done and processes and decision making has to faster to meet the goals, to be able to meet the targets that have been agreed with the IMF”.
China has about US$1.7 billion of the entire external debt portfolio of US$5.7 billion which Ghana is seeking to restructure.
The Finance Minister, Ken Ofori-Atta, last week postponed a planned high-level government delegation to China to late March 2023.
This is owing to the upcoming National People’s Congress of China meeting scheduled for early March.
However, the Finance Minister said bilateral talks will continue ahead of this important mission.
The government is seeking under the G20 Common Framework for Debt Treatment to get debt forgiveness from some bilateral and multilateral partners.
Managing Director of the IMF, Kristalina Georgieva, confirmed in January 2023 that Ghana just became the fourth country to seek treatment under the Common Framework.
The German government has assured that it is willing to get involved in the process but want others on the G20 Framework to also show willingness
“First of all, we insist that those measures that can be taken here in this country have to be taken. The second condition is that, yes, we are willing to take our share of responsibility as one of the major bilateral donors to Ghana”, Ambassador Krull noted.
“But only if all the others also join in this effort. And there is a multilateral framework that was set up exactly for these kind of crisis and we urge and try to convince all stakeholders in this process to stick to this agreed framework. It’s the G 20 framework,” he said.
The Ambassador also noted that he’s “still amazed on the procedures for how the budget is set up and how difficult it is to get an understanding of how this all works. And I think that is something that has to be (Improved) approved. He is however confident that with the necessary political will new opportunities will be created to enhance economic growth.”
In an earlier publication, Fitch Solutions, an international rating agency, downplayed Government of Ghana’s expressed optimism to secure a successful implementation of an external debt restructuring following successfully completion of a Domestic Debt Exchange Programme (DDEP).
The completed DDEP, aimed at alleviating the country’s debt burden in a transparent and efficient manner, would help pave the way for a much-needed external debt restructuring programme.
As government jubilated and kept hopes high, the international rating agency, showed skepticism about the deal’s efficiency, as it has described Ghana’s debt exchange programme as a distressed one. This is under its criteria, given this material reduction in terms vis-à-vis the original contractual terms, and given that the exchange is needed to avoid a traditional payment default. But, the Minister of Finance was confident that the DDEP will build momentum for the country’s external debt restructuring programme.
“The DDEP, part of the government’s broader fiscal policy to address the country’s current macroeconomic challenges, restore macroeconomic stability and put Ghana on a sustainable path to growth and development, has ended with 85% participation”, Ken Ofori-Atta said when addressing Parliament, last week.
“This success, will also build momentum for the external restructuring programme, which has also commenced.”
He said as part of this process, Ghana has officially asked its bilateral creditors for a Debt Treatment initiative under the G-20 Common framework.
Mr. Ofori-Atta also stated that negotiations had already begun with commercial creditors, with the establishment of a Creditor Committee to assess Ghana’s request for debt treatment under the Common Framework expected by the end of February.
He acknowledged the importance of the DDEP in helping the government meet its debt sustainability target of 55% of debt-to-GDP in present value terms by 2028.
“The Government recognises the continued importance of the DDEP in closing the financing gap and enabling the government to meet the debt sustainability target,” said Ofori-Atta.
