Accra, Ghana, September 5, 2018//-A renowned Ghanaian economist and Professor at the University of Cape Coast (UCC), John Gatsi has explained that Ghana-China barter transaction is a debt which will further balloon the West African country’s debt stock.
According to him, “This barter transaction is a loan. The repayment will be from bauxite revenue which is public fund.
A loan includes any money lent or given for which there is condition for repayment and such repayment is from public fund or any fund whatever the name so long as the purpose of the fund is to repay the loan or the money given”.
Prof Gatsi explained to African Eye Report : “Article 181(6) (a)(b) provides very clear understanding of what a loan is to the republic. All the pointers to what a loan is to the Republic are clearly and comprehensively outlined. Thus, there is no doubt that this transaction is a debt and creates creditor- debtor relationship between China and Ghana”.
Acceptance by government that this is a debt and thereafter focus on the assets to be created and adherence to basic principles of natural resources collateralization ,may be fair and acceptable, he said.
Prof Gatsi further explained: “Barter trade is the most basic form of trade transactions. After all, when debt is utilized according to progressive development plan taking into consideration the overall long term interest of the country, then debt is considered to be good.
So why should the government be avoiding the word debt
So why should the government be avoiding the word debt and the minority seeking clarification as to whether the barter transaction is debt?.
The answer to the above is simple. The government while in opposition opposed debt and promised not to borrow. The government while in opposition created mountain out of Debt to GDP ratio forgetting that most developed economies are managing more than 105% Debt to GDP ratios . Maybe the opposition wants government to be aware that the promises about debt are not being kept, Prof Gatsi said.
He questioned why is the barter transaction a liability obligation to government and as a result a debt, saying: “The public debt of Ghana shall be charged on public funds. Bauxite revenue is a public fund”.
“Also China is exchanging her $2billion for a repayment using the sale of refined bauxite and the money disbursed from a dedicated Account. So in reality Ghana will repay the $2billion from the sale of bauxite for which the dedicated account disburses to China over a period of time. Technically, this is not barter but collateralization of bauxite revenue”.
The question is not whether it is debt or not but what percentage of bauxite revenue should be allowed for the collateralization.
Another question Prof Gatsi raised is what extent should China be an off taker of Ghana’s bauxite given that China is the creditor and most companies in the bauxite value chains will come from China.
“Furthermore, to what extent are we guided by prohibitions and guidelines of collateralization in section 5 of the Petroleum Revenue Management Act (PRMA) though it does not regulate bauxite revenue”.
IMF Dazzled over deal
The International Monetary Fund (IMF) is said to be confused about whether the Ghana-China deal is a loan.
The classification is key in the sense that Ghana’s debt stock of at about GHC 120 billion is expected to further balloon if the deal is classified as a loan.
Also, It would raise questions about Ghana’s debt sustainability that explains why the Akufo-Addo-led government is running away from using the word loan.
However, the government has maintained that the deal, in which China will provide $2bn worth of infrastructure in exchange for equal worth of bauxite, is barter, not a loan. But the Minority in Ghana’s Parliament disagreed.
Don’t attempt to deceive the people
“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.
Unhappy with the 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 Mr 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.
IMF’s definitions of debt and loan
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).”
Meanwhile, 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.
At the just-end China-Africa Summit which was attended by almost all African leaders including Ghana’s President Nana Addo Dankwa Akufo-Addo, the Chinese leader, Xi Jinping, further announced that China will spend as much as $60bn (£46.8bn) in investment, aid and loans in Africa over the next three years.
By Masahudu Ankiilu Kunateh, African Eye Report
Email: mk68008@gmail.com
