Ghana is at serious risk of losing control of its resources to China if it does not repay its huge debt to the country soon. China is Ghana’s biggest creditor, and the country is already struggling to make its interest payments on the debt. If Ghana defaults on the debt, China could seize control of the country’s resources, including its oil and gas reserves.
Over the past two decades, Ghana has heavily relied upon Chinese loans as a steady source of finance for large-scale projects and projects, accruing at least $5 billion in those loans up to present. However, as the International Monetary Fund (IMF) has noted, this dependence has put Ghana’s government at risk of losing control of its natural resources – most notably, its oil and mineral resources and the revenues derived from them.
Such reports are especially concerning, as Ghana’s external debt portfolio has now surpassed $30 billion. The country is in its most severe economic crisis in decades, and part of this precarious stability is due to the almost unregulated borrowing over the years. This destabilisation is being further worsened by the fact that China is largely shaping the conditions of international debt, and it is by far the biggest bilateral lender in the world.
However, the opacity of Chinese lending practices is a cause for concern, as is its reluctance to openly present how it renegotiates with troubled clients, of which Ghana is certainly one. This means that Ghana at present is facing a precarious future, which may negatively affect not only the current debt crisis, but also its control over essential resources.
In the face of such an uncertain future, Ghana needs to take strong action and make certain measures to protect itself from the debt trap and, at the same time, guard its resources. This includes, but is not limited to, pursuing better debt renegotiation strategies, solidifying its oil and mineral contracts, and most crucially, broadening its approach to external financing. Looking to other lenders besides China may also be an effective strategy, as it will keep the government from putting too much of their eggs in one basket.
Debt can be a crippling burden for the poorest nations on Earth. China currently holds nearly 40% of the total debt service due by the world’s poorest countries in 2022, totalling $35 billion. This debt service is largely a result of the loans granted by China to these nations, secured by minerals from the nation’s land reserves.
The West African nation of Ghana is a prime example of this debt complexity. As of 2022, Ghana has $1.9 billion in debt due to China, of which $619 million are in the form of collateralized loans. These loans are backed by the resources found on their land, including cocoa, bauxite and oil. The loan agreement even states that if Ghana fails to satisfy its financial obligations to China, then China has the right to take revenue from Ghana’s cocoa, bauxite, oil, and even electricity sales as repayment.
The International Monetary Fund (IMF) classifies collateralized debt as “any contracted or guaranteed debt that gives the creditor the rights over an asset or revenue stream.” This form of debt is particularly concerning for the poorest nations, as it gives major creditors a large degree of control to recoup debts from the resources of the borrower in case of default. This leads to nations like Ghana having a large portion of their resources (and therefore, a large portion of their disposable income) used up by debt, instead of being put towards investment in infrastructure, education, and more.
The World Bank has voiced its concern regarding this issue, urging debt relief or better terms for the poorest nations, such as lower rates, longer maturities, and moratoriums on principal payments to free resources for investment and other uses. Despite the Bank’s efforts, the debt situation for these nations remains largely unresolved.
The $35 billion in debt service due by the world’s poorest nations in 2022 is a startling reminder of the mounting strain the global debt service is having on nations across the world. The debt crisis for poorer nations further underscores how policies of wealthy countries, such as China, have a global reach, with implications on more vulnerable nations.
Presently, Ghana is in a serious situation that puts its economic stability, and consequently control of its resources, at risk. Should the country fail to not only successfully negotiate its debt but also shore up its legal aspects concerning resource control, it may find itself in an even more complicated situation with far more devastating implications.
