Both Ghana and Nigeria are facing significant challenges related to debt sustainability, impacting their economic stability and future development. This article examines the current debt situations in both countries, the measures being taken to address these issues, and the role of international institutions like the IMF and World Bank.
Ghana's Debt Restructuring Efforts
Ghana is actively working to restructure its $58 billion debt, with hopes of finalizing a deal soon. A crucial meeting took place on April 18, 2023, where bilateral creditors discussed providing the necessary relief to unlock a negotiated $3 billion bailout from the IMF.
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President Nana Akufo-Addo’s government expects its bilateral lenders- China and the Paris Club members- to provide financial assurances sometime in May 2023, setting the stage for the IMF approval of the loan in the second quarter of 2023. Speaking on the country’s dire financial crises, Ofori-Atta noted in a briefing that Ghana needs another $1.5bn in financial stability funding to ensure appropriate solvency and liquidity. The World Bank has already committed $250 million, and the Ghanaian government is putting forward $500 million dollars.
International Support and the Need for Reform
The head of the IMF’s Africa department, Abebe Selassie, has emphasized the urgent need for increased international support to help African countries overcome funding challenges that are jeopardizing economic development. He also pointed out that the existing mechanisms for dealing with unsustainable debts in African countries need reform. Selassie did not call for an outright cancellation of current repayments. Instead, he said that what is needed is “a much more efficient sovereign debt framework”.
This relative progress comes at the heels of international impatience over the slow pace at which creditors handled the restructuring agreement discussions. Abebe Selassie has also lent his voice to the call for a significant increase in international support to help countries overcome a funding squeeze jeopardizing the continent’s economic development. He noted that “the reform of the current mechanisms for dealing with unsustainable debts of African countries was desperately needed.
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The slow progress recorded by African countries seeking debt restructuring has come up for discussions in recent times as Zambia and Ghana have struggled to move to the next stage of debt restructuring with the IMF due to uncooperative creditors, and this is coming at a cost to their respective economies. Zambia defaulted on its external debts in 2020 and is still struggling to reach a restructuring agreement with its creditors. Last December, Ghana defaulted on its foreign debts and restructured its domestic debts.
Nigeria's Debt Sustainability and Policy Reforms
The IMF has highlighted that the future of Nigeria’s debt sustainability significantly depends on the reforms and policies implemented by the incoming administration. Abebe Aemro Selassie, the IMF Director for the African Department, shared this insight during a media briefing at the Spring 2023 IMF/World Bank meeting.
Selassie argued that assessing debt sustainability requires looking at a range of indicators rather than a single threshold. He also pointed out the adverse effects of past trade and exchange policies on Nigeria's economic growth. According to the World Bank, the Nigerian government spent 96.3% of its revenue on debt servicing in 2022, with the constant fiscal deficit worsening the country’s public debt stock.
The IMF has stressed that the future of Nigeria’s debt sustainability significantly hangs on the reforms and policies of the incoming administration. Selassie argued that “[w]hether debt is sustainable or not, is not dependent on just one number, one threshold; rather, you have to look at a lot of indicators to assess the trajectory, whether the debt will be sustainable in the coming years or not.” He gave examples of the adverse effects of recent administrations' previous trade and exchange policies and how these policies have hindered economic growth in the West African country.
The report also notes that fiscal and debt pressures will increase if the petrol subsidy is not phased out in June 2023, as envisaged in the 2023 budget.
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Strategies for Debt Management
Selassie suggested that countries with unsustainable debt levels may need to undergo restructuring, supported by a well-functioning debt resolution framework. He also emphasized the importance of containing inflation through monetary policy focused on achieving the Central Bank’s target range. Additionally, he identified climate change as an important factor to consider in economic planning.
Selassie, however, suggested possible exit strategies for countries where debt levels have become elevated and unsustainable. He noted that in such economies, restructuring is going to be unavoidable, and a well-functioning debt resolution framework will be vital to create the required fiscal space. Adding further, "Containing inflation should also be a priority as monetary policy needs to focus on keeping inflation firmly on a downward trajectory and ensuring that it pertains to the Central Bank’s target range. He also identified climate change as an area to be specifically considered.
Ghana-Nigeria Gas Debt and Regional Cooperation
Ghana's outstanding debt currently stands at $75 million for gas supplied by Nigeria through the West African Gas Pipeline (WAGP). This 678-kilometer regional infrastructure project transports natural gas from Nigeria's Niger Delta to Benin, Togo, and Ghana. Over the years, Ghana has occasionally fallen into arrears due to financial challenges in its energy sector, prompting Nigeria to demand payment to avoid supply disruptions.
The WAGP is operated by the West African Gas Pipeline Company Limited (WAPCo), a consortium that includes Chevron, the Nigerian National Petroleum Corporation (NNPC), Shell, and national gas companies from Ghana, Togo, and Benin. Ghana's outstanding debt currently stands at $75 million for gas supplied several months ago, with uncleared documentation hindering payment. Nigeria supplies gas to Ghana through the West African Gas Pipeline (WAGP), a 678-kilometer regional infrastructure project designed to transport natural gas from Nigeria's Niger Delta to Benin, Togo, and Ghana.
Dr. Prempeh, representing the Ghanaian government, has expressed a commitment to key partnerships with all stakeholders and assured that the Ministry of Energy is working to resolve the debt issue. He noted that settling the legacy debt is crucial for fresh negotiations.
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Report from the country’s agency, Ecofin, stated that Nigeria had since the beginning of the year been sending about 60 million cubic feet of gas per day to Ghana through the West Africa Gas Pipeline Company Limited (WAPCo). Kweku Awotwi, Board Chairman, Volta River Authority (VRA), the leading electricity producer in Ghana, noted that the contractual volume was 123 million cubic feet of gas per day and that it should help generate electricity in Ghanaian thermal power plants.
