Poor Countries Set To Pay $22billion For China Debt

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3 days ago

Article – RNZ
New research from the Lowy Institute shows the world's poorest countries will make record high debt repayments to China this year.
, RNZ Pacific Senior Journalist
New research from the Lowy Institute shows the world's poorest countries will make record high debt repayments to China this year.
The research, released last month, showed China is set to call in US$22 billion for debts from 75 countries assessed by the World Bank as the world's poorest and most vulnerable in 2025.
Ten Pacific nations were on the list.
China's foreign ministry, meanwhile, denies Beijing is responsible for developing debt.
Lowy research author Riley Duke said China had shifted from lead bilateral banker to chief debt collector for the developing world.
'Because of the large amount of lending that China did in the mid-2010s, and the way it structured its loans through its Belt-and-Road initiative, this year, it is seeing a huge spike in repayments,' he said.
For Pacific countries that had borrowed from China, Duke said repayment strain was already an issue. He identified Tonga, Samoa and Vanuatu as being at higher risk due to respective loans.
In Tonga, the impact of Chinese loans had been a 'big political issue' this year. Duke anticipated that about 15 percent of the government's revenue over the next few years would be devoted to debt repayments.
'Last year, Tonga spent more on its debt repayments than it did on health for its citizens,' he said.
'And so when we look at the….forward outlook, there are more challenges on the horizon. There are key development issues across the Pacific that countries and their governments and their people want to be dealing with.
'But instead, these debt burdens are there and they're persistent.
'Again, just to focus on Tonga…. [it] ran five successful budget surpluses in the lead-up to having a big wave of Chinese debt repayments coming in.
'But then it faced huge economic costs from the pandemic, from the earthquake, from cyclones, and so that wiped out all the money that [the government] had put aside.'
Duke believed the amount of China's lending into the region was less than a quarter of the level it was in the mid-2010s.
'I'd be surprised to see any new large loans from China in the region, and I think related to that is the broader topic of whether Pacific countries should take on lots of debt.
'Pacific countries have large financing gaps. There's a lot of infrastructure that needs to be built, and sometimes loans are the best way to do that, and ultimately that just comes back to the quality of the project.
'People are a bit afraid of debt, and I think it's a bit…of a dirty word, but if a loan is taken out to finance a project that is good for economic growth, good for a Pacific country [because] it drives connectivity [and] it drives the economy, then it's a good loan, and it's good debt to take on, and it will pay itself back.'
He said there had also been a shift in how China engaged with the region.
'China's main form of engagement with the Pacific 15 years ago was lending. I think 80 percent of all of China's development financing to the region was in the form of loans, and that's fallen off dramatically since around 2018.'
That shift was due to a range of factors, including increased financing options for Pacific governments, Duke said.
'In 2010, China might have been the only partner offering large-scale infrastructure financing.
'Australia is now offering more financing in that space. The World Bank is offering more financing in that space; there's climate funds that are also offering adaptation projects and adaptation infrastructure.
'So there are more options on the table for Pacific countries than there was previously. And I think that is part of the reason that China's lending has declined.'
China's foreign ministry denied Beijing was responsible for developing debt.
'China's cooperation on investment and financing with developing countries follows international practice, market principles, and the principle of debt sustainability,' spokesperson Mao Ning said.
'A handful of countries are spreading the narrative that China is responsible for these countries' debt.
'However, they ignore the fact that multilateral financial institutions and commercial creditors from developed countries are the main creditors of developing countries, and the primary source of debt repayment pressure.
'Lies cannot cover truth and people can tell right from wrong.'