Low- and Middle-Income Countries are in deep debt, courtesy China’s expansionist strategies
4th October 2021 – According to a U.S. based think tank group, Aid Data, several low-and middle-income countries (LMICs) in Asia and Africa are in deep debts totaling over $ 385 billion. On an average, the Chinese debt amounts to 5.8% of their GDP. Some nations that fall under this category are Maldives, Pakistan, Sri Lanka, Zimbabwe, Sudan, Suriname, Kenya and Myanmar.
The research paper analyzed 13,427 Chinese projects worth $ 843 billion across 165 nations over an 18-year-old period. The paper concludes that China has become a financier of first resort for several LMICs in past 2 decades, but its lending and grant giving activities are yet ‘shrouded in secrecy’.
In a major expansionist move, China has left U.S. behind in its overseas development finance and its average spending hovers around $ 85 annually. Since the introduction of the Belt and Road Initiative (BRI), China has maintained a 31-to-1 ratio of loans to grants and a 9-to-1 ratio of OOF to ODA.
After BRI’s implementation, the number of mega-projects (financed with loans over $ 500M or more) have tripled each year. Since these projects are highly risky, they are being backed by stronger repayment safeguards which includes collaterals such as securing energy and natural resources. Most LMICs that China deals with are resource-rich but have been encountered by high levels of corruption. Targeting such nations has been the cornerstone of China’s expansionist strategy.
The report claims a major change in China’s strategy from the pre-BRI days. In the pre-BRI days, China would lend directly to central government institutions. In the post-BRI era, 70% of the loans are being rolled out to state-owned companies, banks, JVs and private sector institutions. Since these loans do not formulate a part of central government balance sheet, the debts are being under-reported to World Bank’s Debtor Reporting System (WBDRS). In an alarming revelation, as many as 42 LMIC nations have a Chinese debt exposure in excess of 10% of GDP.
The report also finds that 35% of the BRI infrastructure project portfolio has encountered major implementation problems including corruption scandals, labor violations, environmental hazards, and public protests. (Click here to read to download the full publication)