Oxford Economics says that thanks to aggressive bond investments from Chinese investors, public debt in frontier markets is at its highest level since 2004. “ More worrying still, the credit boom largely appears to have been wasted, with the countries that have borrowed the most having the lowest levels of investment, suggesting much of the money has not been put to productive use.”
China’s Belt & Road Initiative seems to be responsible for much of the rise in public debt. “Project finance to the 17 frontier countries examined by Oxford Economics has risen 26-fold since 2009 to $280bn, almost half of which has flowed to just three: Pakistan, Nigeria and Argentina, according to the China Global Investment Tracker…Some $32bn of these deals are already characterised as “troubled transactions” by the CGIT.”
Over and above these bonds, there are also bilateral loans extended by China. However, data on just how much China has lent via bilateral loans is not publicly available.
“debt levels have since risen back towards their early 2000s peak…with Costa Rica, Ghana and Ecuador seeing the biggest rises in borrowing and Lebanon, Ukraine and Sri Lanka having the highest absolute levels of debt. Worse still, less of this is in the form of concessional lending from western governments and multinational bodies than was the case earlier this century. As a result, non-concessional debt — whether from China or via the bond markets — has risen to 17 per cent of median GDP, above the early 2000s peak.”
And what is the result of all this lending by China? “Pakistan’s attempts to secure an IMF bailout have already been complicated by the murky nature of Chinese lending, which has rendered it hard to judge whether the country’s debt is sustainable.
In Sri Lanka, China has taken control of Hambantota port and 15,000 acres of adjacent land after the island nation was unable to service a $1.2bn loan used to build the facility…This need to fund larger deficits could be why little of the fresh borrowing appears to be funding productive investment, despite this being the clear objective of China’s BRI-related project financing.”
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