The developing world is suffering a sovereign-debt crisis and China is at the heart of it. Dozens of countries are struggling to pay back loans from China and other creditors
Save time by listening to our audio articles as you multitaskIn one sense, it succeeded. The developing world is suffering a sovereign-debt crisis and China is at the heart of it. Buffeted by the pandemic, inflation and the war in Ukraine, dozens of countries involved in the Belt and Road Initiative are struggling to pay back loans from China and other creditors.
Such teamwork does not come naturally to China. An early test is Sri Lanka, where it has provided cash for ambitious projects. Some of these endeavours, such as big roads and expressways, seem to be worthwhile. But others have been costly flops. A new international airport in Hambantota, in the south, built with a $190m loan from China, has at times struggled to keep the lights on. A Chinese-funded seaport nearby also looks like a dud.
White elephants alone did not cause the debt crisis. The blame lies mostly with Sri Lanka’s government for slashing taxes in 2019 and with covid-19 for crushing tourism. But China provided a shovel to burrow deeper into debt. Early in the pandemic, as the island’s debt woes mounted, some officials wanted to approach thefor a bail-out. But China stepped in, offering emergency loans to boost liquidity.
However, there are some reasons to be optimistic. China financed a splurge on infrastructure in Zambia similar to the one in Sri Lanka. And it frustrated debt-restructuring efforts after Zambia, too, ran into financial trouble. In 2020, though, it backed the “Common Framework” agreement between the20 and the Paris Club to co-operate on debt treatments for poor countries.
in the first such deal under the framework. Now comes talk of China co-chairing a creditor committee with Japan and perhaps India to resolve Sri Lanka’s debt.That would be welcome, as more tests are coming. China has scaled back the Belt and Road Initiative. But it is still not clear if the crisis has prompted a serious rethink in Beijing. In the past China has claimed to offer a better model of development finance, free of the conditions that Western and multilateral lenders impose.
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