In view of the heavy debt burden that is upon several African countries and its bad effect on their Gross Domestic Product and strength of their local currency to the dollar, Ghana has begin a process that could get its debt relived soon according to an official of the country.
Ghana last week requested a restructuring of debt it owes to other governments, becoming the fourth country after Chad, Ethiopia, and Zambia to do so under a G20 Common Framework.
Consequently, member countries of the G20 group of economic powers are now on board for a restructuring of Ghana’s debt and Paris Club members are ready to take the first step towards forming a creditor committee, an official from the Paris Club told journalists recently.
The programme, which was launched in 2020, was supposed to streamline the process of coordinating among creditor governments the restructuring of low-income countries’ debts after the pandemic.
However, progress has proven glacial for the first cases, a situation Western country have said is in part due to a lack of restructuring experience from China, a non-Paris Club G20 creditor that has become a major lender in recent years.
“There is a commitment by the leaders to form the creditor committee, so it’s a question of time. We know that all the G20 members are committed to undertake the debt treatment under the Common Framework,” the Paris Club official said .
The official requested not to be named to speak freely about the restructuring situation.
Forming a creditor committee took a couple of months for previous cases, however the official said the Paris Club members were all ready to do so for Ghana and hoped it could be done in a month.
The official said Ghana’s case was less complex than Zambia, whose case the official said was progressing after struggling since it became the first African country to default after the pandemic.
“We think that the process will become smoother and smoother on the basis of the previous cases,” the official said, adding that Ghana’s authorities had sought assurances its case would be dealt with in a “timely manner”.
The debate on debt sustainability is increasingly gaining traction, especially among donors, multilateral banks, and policymakers following the rise in the debt of African countries in recent years. The sharp rise in debt reminds us of the debt crisis of the 1990s when the Multilateral Debt Relief Initiative (MDRI) was adopted for the outright forgiveness of debt owed by a group of 36 low-income poor countries. The MDRI was conditioned on sound economic management and poverty reduction strategies as well as assisting countries to achieve the then Millennium Development Goals (MDGs). Prominent debt relief was for the Heavily Indebted Poor Countries (HIPC) initiative instituted by the International Monetary Fund (IMF) and World Bank in 1996 to address debt overhang in the poorest countries of the world. Following this initiative, 29 African countries were among the low-income countries to benefit from this debt relief.
Africa’s debt crisis started in the late 1970s when many African countries amassed substantial external debt to finance their public expenditure. However, weak domestic savings and declining commodity prices made it very difficult for countries to service the debt. Furthermore, countries took on additional loans to cushion the 1973 oil and commodity price shocks with the expectation that commodity prices would eventually recover find that between 1976 and 1980, Africa’s external debt grew by 187%, from $39 billion to $112 billion.
President Mohammadu Buhari of Nigeria has been at the forefront of the campaign for the Paris Club and others to forgive African countries their debt. It is coming as a soccour that some countries including Ghana are being considered for the latest debt relief programme just like Nigeria got some of its debt forgiven during the administration of Olusegun Obasanjo between 1999 and 2007.
