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World Bank advises Ghana to initiate prompt resolution processes for
unsustainable debt
WBG | Economy April 21, 2022 | Norvan Reports
World Bank President, David Malpass, has advised the Government of Ghana (GoG) to initiate
prompt, early resolution processes for its unsustainable debt. Speaking at the Spring Meetings
Opening Press Conference on Wednesday, April 20, 2022, Mr Malpass noted the resolution
process can commence with the formation of a creditor committee for Ghana – basically the
Creditor Committee will consist of creditors or lenders to the Ghanaian government. With the
creation of the creditor committee, it is expected that the government and its creditors will
negotiate and restructure debts to reduce country’s debt burden.
World Bank advises Ghana to initiate prompt resolution processes for unsustainable debt
Citing the current default on loans by the government of Sri Lanka as an example, the World
Bank President noted that, the longer Ghana and other countries wait to initiate resolution
processes, the more it becomes difficult for the resolution processes to be carried out by the
country and its lenders.“It’s vital and we know what the data shows: a huge buildup of debt,
especially in the poorest countries. It’s important that the resolution process starts early. If you
wait, the resolutions are much more difficult to carry out. Sri Lanka is facing that problem now.
It’s important to form the creditor committees early.
“There was a call today for China to form the creditor committee for Zambia, which would help
with the implementation of the Common Framework. And so, I’ve mentioned that as interest
rates rise, the debt pressures are mounting on developing countries, and we need to move
urgently towards solutions,” he stated.
Ghana’s debt to GDP currently stands at an unsustainable level of 80.1%.Answering a question
on the country’s decision to either improve revenue mobilisation or rather issue Eurobonds to
correct its deficit position, Mr Malpass averred Ghana should put in place strong policies that
attract investments from its own citizens and are private sector-led and not government led. Adding that, proceeds from Eurobonds should be effectively used by the government
seeing that it is just a one-time supply of money and not allow it contribute to the unsustainable
debt burden of the country.
“Countries should put in place policies that are strong and that attract investment by their own
citizens and by foreigners. Some of those can be revenue mobilization policies but, very
important, they should be growth policies and they should attract private sector investment.
“There’s been a tendency to have too much emphasis on government-led investment, which
doesn’t end up adding to the competitiveness and the productivity as much as it should, if it
were less centralized. I think those steps are important,” he noted. “As far as euro bonds, the
challenge is for governments to use the proceeds very effectively now if they borrow. A giant
conflict of interest is that sitting governments are able to borrow, and then future governments
and the people of their countries have to pay back the borrowing. Remember, when you borrow
principle, you only get to do it once, even if you roll over at zero percent interest rates into the
future, which isn’t actually available for developing countries–if you roll over at a low interest
rate you still are not able to borrow the principle again.
“It’s only a one-time supply of money, and that has to be used very effectively. And my worry is
that hasn’t been the case in certain countries, and they’re left with unsustainable debt. As I
mentioned in the opening remarks, it’s important that we have prompt, early resolution
processes for unsustainable debt. And we’re working on that with the IMF, collaborating and
encouraging the G20 to move quickly in that regard,” he added.