World’s poorest countries pushed to brink of collapse under China debt

At least a dozen poor countries are buckling under the weight of hundreds of billions of dollars in debt, most of which is owed to China. 
A recent analysis, carried out by the Associated Press, found that for a dozen countries, paying back their debt is consuming a growing amount of their tax revenue needed to keep basic services going.
Among the countries analyzed was Pakistan, Kenya, Zambia, Laos and Mongolia and it was found that paying back their debt is also draining foreign currency reserves that these countries use to pay interest on the loans – leaving some with just months before that money is gone.
AP reported that behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms, which has kept other major lenders from stepping in to help. 
According to World Bank data analyzed by Statista recently, countries heavily in debt to China are mostly located in Africa, but can also be found in Central Asia, Southeast Asia and the Pacific. 
And, Statista reports that the new Belt and Road Initiative, which finances the construction of port, rail and land infrastructure, has created much debt to China for participating countries, specifically poor countries.
As of March last year, 215 cooperation documents had been signed with 149 countries on the initiative.
Countries in AP’s analysis meanwhile had as much as 50% of their foreign loans from China and most were devoting more than a third of government revenue to paying off foreign debt. 
Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines and power plants.
In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running, AP stated.
In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.”
The study also found that since Sri Lanka defaulted a year ago, a half-million industrial jobs have vanished, inflation has risen by 50% and more than half the population in many parts of the country has fallen into poverty.
The study found that experts predict that unless China begins to soften its stance on its loans to poor countries, there could be a wave of more defaults and political upheavals.
AP’s report stated that a case study of how it has played out is in Zambia, a landlocked country of 20 million people in southern Africa that over the past two decades has borrowed billions of dollars from Chinese state-owned banks to build dams, railways and roads.
While the loans boosted Zambia’s economy, they also raised foreign interest payments so high that there was little left for the government, forcing it to cut spending on healthcare, social services and subsidies to farmers for seed and fertilizer.
In the past under such circumstances, big government lenders such as the U.S., Japan and France would work out deals to forgive some debt, with each lender disclosing clearly what they were owed and on what terms so no one would feel cheated.
But China didn’t play by those rules, AP reported. It refused at first to even join in multinational talks, negotiating separately with Zambia and insisting on confidentiality that barred the country from telling non-Chinese lenders the terms of the loans.
By late 2020, Zambia was unable to pay the interest and defaulted, setting off a cycle of spending cuts and deepening poverty. 
Since then, inflation in Zambia has increased by 50%, unemployment has hit a 17-year high and the nation’s currency, the kwacha, has lost 30% of its value in just seven months. AP also found that 3.5 million Zambians are now not getting enough food. 
AP reported that a few months after Zambia defaulted, researchers found that the country owed $6.6 billion to Chinese state-owned banks, double what many thought at the time and about a third of the country’s total debt.
China’s unwillingness however to take big losses on the hundreds of billions of dollars it is owed, as the International Monetary Fund and World Bank have urged, has left many countries on a treadmill of paying back interest, which stifles the economic growth that would help them pay off the debt.
For Pakistan, its foreign cash reserves have plunged more than 50%, according to AP’s analysis, while in nine of the 12 countries analyzed, foreign cash reserves have dropped on average of 25% in just one year. 
Based on this, Pakistan for example has only two months left of foreign cash to pay for food, fuel and other essential imports if it does not get a bailout. Other countries, such as Mongolia, have eight months left. 
AP found that last month, Pakistan was so desperate to prevent more blackouts that it struck a deal to buy discounted oil from Russia, breaking ranks with the US-led effort to shut off Vladimir Putin’s funds.
In Sri Lanka, rioters poured into the streets last July, setting homes of government ministers aflame and storming the presidential palace, sending the leader tied to onerous deals with China fleeing the country.
China has however disputed the idea that Beijing is an unforgiving lender and said in a statement that the Federal Reserve was to blame. 
It said that if it is to accede to IMF and World Bank demands to forgive a portion of its loans, so should multilateral lenders, which it views as US proxies.
“We call on these institutions to actively participate in relevant actions in accordance with the principle of ‘joint action, fair burden’ and make greater contributions to help developing countries tide over the difficulties,” the statement said.
But China’s approach to lending is widely considered more transactional and criticized as “opaque” and analysts see Beijing’s desire to access oil, minerals and other commodities as the driving force behind Chinese lenders being less prone to applying strict conditions in helping governments finance roads, bridges and railroads – so as to unlock those resources.
Just last month, US Treasury Secretary Janet Yellen told lawmakers: “I’m very, very concerned about some of the activities that China engages in globally, investing in countries in ways that leave them trapped in debt and don’t promote economic development.”
“We are working very hard to counter that influence in all of the international institutions that we participate in,” she said. 
Since 2017, China has become the world’s largest official creditor, surpassing the World Bank, IMF and 22-member Paris Club combined, Brent Neiman, a counselor to Yellen, said late last year. 
Politico meanwhile reported earlier this month that China’s financing of projects in other countries between 2000 and 2017 totaled more than $800 billion, most of that in the form of loans.
But for some poor countries struggling to repay China, they now find themselves stuck in a kind of loan limbo: China won’t budge in taking losses, and the IMF won’t offer low-interest loans if the money is just going to pay interest on Chinese debt.
 The post World’s poorest countries pushed to brink of collapse under China debt first appeared on Ariana News.

Source: Ariana News

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