Ghana is getting some oxygen. The International Monetary Fund (IMF) approved Wednesday (May 17th) a loan of three billion dollars, spread over three years, to refloat this West African country which is going through its worst economic crisis in decades.
It aims to "restore macroeconomic stability and debt sustainability, as well as implement far-reaching reforms to strengthen resilience and lay the foundations for stronger and more inclusive growth," IMF Managing Director Kristalina Georgieva said in an IMF statement.
The country is expected to receive an immediate first disbursement of about $600 million. The agreement marks the culmination of a round of negotiations that began in December 2022, when Ghana declared itself in default, unable to repay its debts.
The IMF's approval was far from being won, but the promise of its creditors, led by France and China, of a restructuring of its debt may have unblocked the situation.
The end of "Ghana without aid"
According to the World Bank, Ghana is one of the most indebted countries on the continent, with a debt of $58 billion representing 105% of its GDP.
"There is a lot of focus on external debt vis-à-vis international creditors but we must not forget that the bulk of Ghana's public debt is domestic debt held by the country's commercial banks," said Marc Raffinot, associate professor emeritus at Paris Dauphine University and a development specialist.
With the help of the IMF, Ghana hopes to emerge from the hell of debt and regain the confidence of markets and investors. However, this international support represents at the same time a heartbreak for public opinion and President Nana Akufo-Addo.
The latter has built much of its popularity on the slogan "Ghana without aid", symbol of Ghana's economic independence from rich countries. In 2019, the president had notably put an end to the agreement signed with the IMF by his predecessor, John Dramani Mahama, which provided for a loan of one billion dollars, in exchange for an austerity plan. A step that was to mark a new era of emancipation for Ghana.
But five years later, the government is forced to return to knock on the door of the Washington institution with the key to new austerity measures. After raising VAT by 2.5%, freezing hiring in the civil service, reducing the state's lifestyle, the government has committed to raising taxes. And other painful reforms are expected to follow.
See also In Ghana, electronic transactions taxed at 1.5%, a controversial tax
A model country in West Africa
Ghana has long been a good student in West Africa: a stable democracy, a reputation for good governance compared to its neighbours and a favourable business climate have made Accra an ideal destination for foreign investment.
A major gold exporter with significant oil and gas reserves, Ghana is also a leading agricultural power: the world's second largest cocoa producer after Côte d'Ivoire and a major player in the production of yams, cassava and plantains.
Buoyed by rising commodity prices and hydrocarbon production, Ghana recorded growth of more than 2018% in 6, making the small country of 30 million people a driving force for the continent's growth.
But this was without counting on the shock of Covid-19 which, like other African countries, will bring Ghana's economy to a standstill. The war in Ukraine and its consequences on energy prices will end up weakening the country's economy.
"We must also mention a third shock: that of the rise in interest rates in the United States and Europe, which has made investors more attentive to financial risks," explains Marc Raffinot.
At the same time, inflation has soared to over 40% while the local currency has collapsed, making life impossible for millions of Ghanaians who are worried about having to tighten their belts even more since the announcement of an agreement with the IMF.
A summit in Paris in June
A legitimate concern when Ghana must devote a third of its resources to repaying its external debt. And this alarming situation, far from being isolated in Africa, illustrates the difficulties of the poorest countries, hit hard since 2020 by a series of health, energy and climate crises.
According to a 2022 United Nations Development Programme (UNDP) report, more than 54 low- and middle-income countries are in critical debt distress and need urgent burden relief to transform their economies and adapt to climate change. Among the countries whose debt is a real time bomb: Chad, Ethiopia and Zambia, currently in negotiations with the IMF.
To get out of the rut, the UN advocates in particular to facilitate an acceleration of debt restructuring for poor countries but also to find new financing. Issues mixing climate and debt that will be at the heart of a summit on 22 and 23 June in Paris organized ahead of the next COP to be held in the United Arab Emirates.
" READ ALSO The debt puzzle of African countries
On this occasion, the France intends to initiate reflection on new solidarity mechanisms to support the ecological transition of the most vulnerable countries. Paris could notably support the idea of an international tax on multinationals in the energy sector or maritime transport.
China said it would attend the conference, which is also expected to include UN Secretary-General Antonio Guterres and White House climate envoy John Kerry.
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