The International Monetary Fund (IMF) has responded to the National Democratic Congress (NDC) Minority in Parliament, over the latter’s letter to the Fund, requesting to know whether the Akufo-Addo- led government’s agreement with Sinohydro Corporation, should be classified as government debt under the Fund’s programme or not?
In a letter dated August 30, 2018 addressed to Ranking Member on the Finance Committee and Member of Parliament (MP) for Ajumako-Enyan-Essiam, Casel Ato Forson, the IMF’s Country Representative, Natalia A. Koliadina acknowledged receipt of the letter, but said because of the complex nature of the bauxite transaction entered into by government, she was unable to answer the question by herself.
“Given the complexity of the transaction, I am unable to answer your questions immediately”, she said in a four paragraph letter.
She continued by saying that, the Fund was in talks with it Headquarters, including it Legal Department to see how the deal could be termed.
According to her, the Fund will be discussing the issue in the upcoming seventh review mission under the Extended Credit Facility.
She also in her letter that, the Fund will use the definition of government debt in the technical memorandum of understandings which hasn’t changed since the inception of the programme to arrive at the decision.
On its website, the IMF said 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) in time; these payments will discharge the principal and /or interest liabilities incurred under the contract.
Last week, The Herald published how the Fund queried the Finance Minister over the deal.
Below is the publication
Finance Minister, Ken Ofori-Atta’s smiles, have been shortened by the International Monetary Fund (IMF) with query served on him to disclose details of the Ghana government US$2 billion bauxite deal with the Chinese company, Sinohydro.
The Herald’s sources at the Finance Ministry, revealed that the Minister was served a query from the American office of the Fund, following a petition sent by the Minority Members of Parliament (MPs) to investigate the bauxite deal and determine whether or not, it will not raise Ghana’s debt profile.
The IMF, according to this paper’s information upon receipt of the letter signed by Minority Leader, Haruna Iddrisu and the Ranking Member of the Finance Committee of Parliament, Cassiel Ato Forson, immediately wrote to Mr Ofori-Atta, asking him for details of the transaction.
The query quickly led to a leakage of the letter from the Minority by the Finance Ministry and has since found its way into both social and mainstream media platforms.
Meanwhile, Global financial analyst Fitch, is predicting the Ghana government is likely to face risks from the $2 billion bauxite deal with the Chinese.
In a report dated August 28, 2018, it predicted a dire situation for the country, if the value of bauxite takes a dip.
The report comes at a time when Parliament approved US$500 million for phase one of the bauxite deal that will see roads constructed by Sinohydro with government paying back with bauxite.
The government insists the deal is a barter arrangement, which will not add to the country’s debt burden, but the Minority disagrees and wants the deal captured as a loan agreement and has written to demand clarification from the IMF. The IMF is yet to respond.
According to Fitch, however, if the IMF were to capture the agreement as a loan, Ghana’s debt profile on the international market, will be heavily affected.
“The value of refined bauxite is likely to fluctuate, which – assuming the agreement is based on a monetary value for the refined bauxite – will see the amount of bauxite handed over to repay the debt potentially rise considerably. This could see the industry handing over much of its produce to China which may produce a domestic political backlash from opposition parties or from worker’s unions, affecting social stability.
“If the value of bauxite were to plunge and Ghana could not meet the terms of the agreement there is a risk that Sinohydro or the Chinese state may use the position to extract political concessions. The failure to repay debts to a Chinese firm – incurred over a construction project – saw China take over control of Sri Lankan port Hambanthota, and although we deem such a scenario unlikely in Ghana, it highlights a risk that debt to Chinese firms can lead to political concessions being extracted,” the report said.
The report stated further that “as we approach the 2020 election however, these factors may pose greater risks to policy continuity and to the government’s ability to act without regard to external constraints.”