Repayment of a US$2-billion loan backed by a portion of Ghana’s bauxite reserves may be defaulted upon according to a report published last week quoting the International Monetary Fund (IMF).
According to the Natural Resource Governance Institute’s report entitled Resource-Backed Loans: Pitfalls and Potential, the 2018 loan to Ghana’s government from Chinese firm Sinohydro obligates the West African state to rapidly establish and bring to full capacity the production and refining of its bauxite ore reserves. However, the IMF said in the report that the odds of such a ramp-up being done on schedule are increasingly diminishing.
“The International Monetary Fund (IMF) has warned the repayment of the US$2.0 billion bauxite-backed-loan may not be possible and therefore could lead to loss of collateral” warned the NRGI in its report.
The subject of the loan rests beneath the 90 square miles of the Atewa Forest Reserve in eastern Ghana, where several billions of dollars of untapped bauxite ore lie. About 5 percent of the cache’s contents will be bartered in exchange for infrastructure improvements throughout the country.
The IMF went on to criticize this deal and resource-backed loans in general due to a lack of financial transparency on the loans. NRGI Africa co-director Silas Olan’g called for a change in that aspect of such deals.
“Borrowers and lenders must allow for greater scrutiny to ensure that these loans are sustainable and serve the interests of the people and the countries they are supposed to benefit,” opined Olan’g.
“The deals may already have been signed in Ghana and Guinea, but it’s not too late to come clean about the terms of the loan and to involve the communities who will be affected by the mining in meaningful discussions.”
According to NRGI’s research, sub-Saharan African countries are involved in five dozen resource-backed loan arrangements totaling US$66 billion. Over half the funding involved in these loans come from either China Development Bank (CDB) or the China Eximbank.