International ratings agency, Fitch says Ghana could face some potential long-term political risks from the US$ 2 billion bauxite-for-loan agreement with Chinese firm Sinohydro.
The ‘barter” agreement between Ghana and Sinohydro will see the latter develop infrastructure in exchange for refined bauxite.
But Fitch in its latest report on Ghana said though likely a boon for economic growth, the project carries some political risks.
They include the minority in Parliament are demanding that the International Monetary Fund investigate the agreement, insisting the agreement should be considered as an addition to the debt burden.
Fitch said “there is a moderate risk that should the IMF determine that this agreement does add to the government debt burden, Ghana’s relations with the international body and with international debt markets may be affected.”
Secondly, the value of refined bauxite is likely to fluctuate, which assuming the agreement is based on a monetary value for the refined bauxite will see the amount of bauxite handed over to repay the debt potentially rise considerably. This Fitch said could see the industry handing over much of its produce to China which may produce a domestic political backlash from opposition parties or from worker’s unions, affecting social stability.
“If the value of bauxite were to plunge and Ghana could not meet the terms of the agreement there is a risk that Sinohydro or the Chinese state may use the position to extract political concessions. The failure to repay debts to a Chinese firm - incurred over a construction project - saw China take over control of Sri Lankan port Hambanthota, and although we deem such a scenario unlikely in Ghana, it highlights a risk that debt to Chinese firms can lead to political concessions being extracted.”
It added that “these political headwinds are likely to stoke some opposition to government policies within the legislature, but for now we maintain that the government's large majority will contain this. As we approach the 2020 election however, these factors may pose greater risks to policy continuity and to the government's ability to act without regard to external constraints.
Cocoa reforms threatened
Fitch also said some risks to policy formation will oblige the government to abandon plans to cut subsidies to the cocoa sector.
However, “We stress that the government will remain able to pass policy in most other areas and it will survive to the 2020 election.”
It added “The finance minister's plans to end subsidies to cocoa farmers are likely to arouse significant opposition, likely leading to the policy directive being dropped”.
Finance Minister, Ken Ofori-Atta has reaffirmed his commitment to ending large subsides to Ghana's 800,000 cocoa farmers, which had been put in place at a time of low cocoa prices. After he proposed ending subsides in January 2018, strong opposition from ministers including the agricultural minister, Fitch stated saw discussion shelved for several months.”
“Though subsidies are weighing on expenditures, we expect that the government will be forced by considerable opposition and political concerns into abandoning plans to cut them, suggesting that policy-formation may face some limited impediments”, it emphasized.
It reiterated that the plan will be abandoned due to political gains.
“800,000 cocoa farmers are a large electoral constituency and the ruling New Patriotic Party has considerable support amongst them, having promised them higher spending on farming in the 2016 general election. This will make government MPs reluctant to support these measures.”
Additionally, the ratings agency said “There has already been outspoken opposition to these proposals from within the cabinet, when the agricultural minister expressed his opposition to dropping subsides publicly in March 2018. This suggests that there will be open dissent even within the executive if such a move is pushed forward.”
On top of that, farmers are facing restricted credit access due to some headwinds to the banking sector, indicating that they will be unable to find the funds to cover the losses themselves.
Fitch said this suggests that farmers will be hit hard by a cut in subsidized prices and may turn to large protests and supporting opposition parties if the subsidies are cut.
Source: The Finder
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I don't understand some people in this country, A certain Doctor said there are certain Doctor said there are some people in this country moving with well dressed but they were out of their senses Because I dont understand why I should fight against something that is coming to benefit me.
In breath you're talking about risk of we losing face with IMF as if we care to deal with them, and in the other you ended up with subsidies for cocoa farmers being cut off, what at all is your motive the finder editors well not surprised tho cos you're an NDC pro paper....but trust me nothing will happen your analysis is bogus because we are not trading in any monetary value to add it to our debts secondly we would not owe the Chinese govt anything, would be mining the and extracting with their own resouces...dont mislead us we read wide wai
Nana and finance minister dont mind NDC and these nonsis advisers, the only thing NDC knows is to leaves this diamond for their so called Mahama's brother IBRAHAM. but whatever they do, they will not come to power today or tomorrow to get HOLD of the diamond in Ashanti region. tell the NDC'S to use their hands to work hard for their money than stea-ling Ghanains money to became rich themselves.
'Nay" sayers only see the downside but advise is well taken. But we shall still take the risk. Life and everything about it is all risk, In Finance we say the higher the risk, the higher the returns. Governments should take bold decisions and work to mitigate the risks otherwise what is the point in electing people to do what the ordinary man on the street can do,
The only thing is ,we thank God the bauxite is mot in any ndc stronghold, the bauxite us not for the ndc and those the bauxite belong to are happy at least their area will get development, unlike the ndc and their mahama who out if jealousy ,hatred and env*ness handed over an Ashanti wealth to his brother to chop k3k3! when it came to NHIS capitation pilot program these evil ndc sent it to the Ashanti region to kill them headed by Sylvester Mensah who think it will be better for him to be president of divide and rule in Ghana! y3b3 hw3! ndc forgot Asawase wasn't in any of their strongholds but their greatest enemies the Ashantis land! which they the greatest enemies of the ndc out of compassion gave their stronghold that land to reside. when it comes to death ndc will send it to the Ashanti region, when it comes to wealth they will ste*l Ashanti resources, Onyame betua moka and your ndc will rot in opposition! whether petition to IMF to stop the batter for the good people of Ghana from benefiting or No IMF the batter transaction will come on for Ashanti to benefit and the good people of Ghana to also benefit.Ndc is not good for Ghana!