China’s loans pushing world’s poorest countries to brink of collapse

New York: A dozen poor countries are facing economic instability and even collapse under the weight of hundreds of billions of dollars in foreign loans, much of them from the world’s biggest and most unforgiving government lender, China.

A recent analysis of a dozen countries most indebted to China — including Pakistan, Kenya, Zambia, Laos and Mongolia — found paying back that debt is consuming an ever-greater amount of the tax revenue needed to keep schools open, provide electricity and pay for food and fuel. And it’s draining foreign currency reserves these countries use to pay interest on those loans, leaving some with just months before that money is gone.

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. On top of that is the recent discovery that borrowers have been forced to put cash in hidden escrow accounts that push China to the front of the line of creditors to be paid.

Countries in the analysis 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.

Since Sri Lanka defaulted a year ago, a half-million industrial jobs have vanished, inflation has pierced 50% and more than half the population in many parts of the country has fallen into poverty.

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 U.S.-led effort to shut off Vladimir Putin’s funds.

Image courtesy of TNIE

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