But the recent fall in the prices of these commodities has had a devastating impact on the Ghanaian economy, according to a new report by Jubilee Debt Campaign in the UK and the Integrated Social Development Centre in Ghana.
The report looks at why the country’s debt has risen back to crisis levels over the last decade; the role the International Monetary Fund (IMF) and World Bank have played in fueling the lending boom; and what can be done to stop history repeating itself.
Significant amounts of Ghana’s debt were cancelled a decade ago, following Jubilee Debt’s global campaigning to drop the debt of struggling developing countries, including Ghana’s.
“That debt cancellation has led to real benefits – including large increases in the proportion of children completing primary school and the number of births attended by a skilled health professional,” the group said.
It warned, however: “The global financial system that keeps generating debt crises has not been changed. Today, Ghana is in a new crisis.
“The recent fall in the price of oil, gold and other commodities has had a dramatic impact, with the value of the Ghanaian currency, the cedi, halving against the dollar since 2013,” Jubilee Debt Campaign said, adding: “Now one-third of the government’s budget is being spent on external debt payments.”
Public spending has been cut by 20 per cent while taxes have gone up.
“Ghana’s crisis is the result of a gradual increase in lending and borrowing off the back of the discovery of oil and high commodity prices,” the report points out.
“More money was then borrowed following the fall in the price of oil and other commodities since 2013, to try to deal with the impact of the commodity price crash, whilst the relative size of the debt also grew because of the fall in the value of the Ghanaian currency, the cedi, against the dollar,” according to the report.
Now Jubilee Debt Campaign has blamed the World Bank for guaranteeing a high-interest loan to Ghana and accused it of making large profits for speculators, in breach of the Bank’s own rules.
Speculators are earning eight to11 per cent interest every year on their loans to the country, despite knowing Ghana would struggle to repay when the money was lent, according to the report.
The campaigning groups said that by guaranteeing a $400 million high-interest private loan to the country, the first such guarantee the World Bank has given for 15 years, the Bretton Wood Institution had broken its own rules against lending to countries with high-risk debts.
The guarantee came seven months after the IMF and World Bank assessed Ghana as a “high risk” country because it was unable to pay its debts.
The World Bank guaranteed $400 million of payments on a $1 billion bond sold to private speculators under English law, with a 10.75 per cent interest rate.
Under World Bank rules, it is not meant to provide such guarantees to countries that are assessed as high debt risks.
The high interest rate and World Bank guarantee meant that the speculators would still make money even if the Ghanaian government never repaid any of the principal, and only some of the interest, the campaigning groups’ report said.
Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign, UK, said: “The underlying causes of Ghana’s new debt crisis are that neither borrowers nor lenders have learned from past mistakes, and that its economy remains reliant on primary commodities, leaving it extremely vulnerable to the recent global commodity price crash.
“The people of Ghana should not have to suffer through yet another debt crisis while lenders who speculated on their economy reap huge profits out of high interest loans guaranteed by the World Bank.
“Ghana’s debts need to be reduced or restructured to escape another prolonged debt trap, while regulation of lending, more responsible borrowing, and tax justice are essential to end this cycle of debt crises once and for all,” she added.
Bernard Anaba from the Integrated Social Development Centre said: “Debt should not be a bad thing, but if money is borrowed in the name of poor people, not spent well, and people are slapped with austerity as a result, that is a gross injustice.”