Associate Finance Professor at Andrews University in Michigan, U.S.A, Williams Peprah, has advised the government to negotiate a lengthy repayment plan with China on its external debt.
According to him, China was not known to cut interest on debts due to moves to influence its geopolitical presence across the world.
In addition, he argued that China was classified as a developing country which relied heavily on interest payments as major income.
Speaking to Joy Business, Prof. Peprah, warned that Ghana might lose time if it did not opt for a lengthy debt repayment structure.
“Our government should rather possibly negotiate for a lengthy repayment period. The Chinese are not interested in negotiating debts down because they feel that once they do that, more countries will come forward for similar treatments,” he said.
Making reference to the Zambia and Sri Lanka examples, Prof. Peprah recounted that China was reluctant in granting debt restructuring proposals for these two countries, pushing them into difficult economic situations.
He argued that it would be very difficult for China to accept as much as 20 per cent haircut on its interest rate for Ghana.
“It is not certain that the Chinese are going to give us a haircut of 20 to 40% that the Finance Minister is expecting. In Zambia, they gave them 1.0% haircut on the coupon, that is the interest payment and not on the principal. For Sri Lanka, they lengthened the payment process. Based on this, it will be difficult for Ghana to get what the Minister is expecting”, he stressed.
Providing some ideas, Prof. Peprah advised the government to spread the payment period over a long period of time to provide some space to repay the loans.
“This could be one of the ways because China gets a lot of their revenues from interest payments. They are classified as developing nation and so they are seen not to have a lot of resources to just give out”.
He stated that government should have studied the way China had negotiated debt restructuring in the past to guide its proposals.
He warned that the country could face Balance of Payment challenges if the restructuring drags, leading to a delay in the disbursement of the $600 million second tranche IMF funding.