In recent years, China has issued tens of billions in opaque “emergency” loans to vulnerable countries, suggesting a shift towards providing short-term emergency loans rather than longer-term infrastructure loans.
Since 2017, Beijing has granted a total of $32.8 billion in emergency loans to Sri Lanka, Pakistan and Argentina auxiliary data, a research lab at William & Mary University that focuses on China’s global financing activities.
China has also offered emergency loans to Eastern European countries Ukraine and Belarus; South American countries Venezuela and Ecuador; African nations of Kenya and Angola; alongside Laos, Egypt and Mongolia. Chinese foreign loans and credit relationships remain “extraordinarily opaque”. World Bank researchers. “Chinese lenders require strict confidentiality from their borrowers and do not publish a detailed breakdown of their lending,” they wrote.
However, researchers have found that the bulk of China’s foreign credit – about 60% – now goes to low-income countries currently mired in crisis debt distress, or a high risk of it. Beijing’s move to short-term bailout loans underscores its growing role as an emergency lender of last resort, making it an alternative to the Western-backed International Monetary Fund (IMF).
Pundits are worried about what comes next as many of the nations that have borrowed from China face an extraordinary debt crisis at a time of inflation and climate change. For example, just last week a Pakistani official said the epic floods that blanketed most of the South Asian country would cost more than $10 billion.
“Beijing has attempted to keep these countries afloat by issuing emergency credit after emergency credit without asking its borrowers to restore economic policy discipline or seek debt relief through a coordinated restructuring process with all major creditors,” said Bradley Parks, executive director of AidData . told the FT.
Emerging markets in Asia, Africa and the Middle East are struggling to repay their BRI loans. The COVID-19 pandemic and Russia’s war against Ukraine exacerbated these countries’ food and fuel shortages and their balance of payments crises. Almost 70% of the world’s poorest countries will spend $52.8 billion this year to pay off their debts more than a quarter of which flows to China.
This means China has become the key official player in global sovereign debt renegotiations, World Bank researchers say. But with Chinese lenders demanding strict confidentiality from their borrowers and not releasing a detailed breakdown of their lending, there is a yawning knowledge gap about what happens to Chinese receivables in the event of a debt crisis and default, they wrote.
Gabriel Sterne, a former IMF economist and current Head of Global Emerging Markets and Strategy Research at Oxford Economics, told the FT that China’s emergency lending is merely “postponing the day of reckoning” for indebted nations that may seek Chinese credit and shun the IMF, which is “calling for painful reforms.”
in the last few weeks, both China and the IMF have signed or approached bailout agreements for Sri Lanka, Pakistan and other nations. Beijing has now pledged Made 23 interest-free loans to 17 African nations and diverted $10 billion of its IMF reserves to the continent.
There are now signs that the IMF is urging full transparency from vulnerable nations in order to receive funding. Parks by AidData told the South China tomorrow post last month that the IMF is pressuring borrowers to disclose their BRI loan agreement details.
The IMF has “zeroed out cash collateral clauses in BRI loan agreements that give China a priority claim on foreign exchange in borrowing countries,” Parks said.
Some countries are already complying with the tightened credit conditions. Pakistan, for example, has “shared details with the IMF…in consultation with the Chinese side,” said Muhammad Faisal, a research fellow at the Institute for Strategic Studies in Islamabad. told the SCMP.
Still, World Bank researchers predict China’s appetite for foreign financing, lending and debt relief will diminish as Chinese lenders at home and abroad come under pressure. Emerging markets are at risk of a “sudden halt” in Chinese lending, which could have “significant” domino effects around the world.
[This report was updated to include a final paragraph on World Bank researchers’ predictions.]
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