Page 24 - bne magazine September 2021_20210901

24 I Cover story bne September 2021
There has also been a volley of reports and op-eds from US-based think tanks on debt dependency and other risks of cooperation with Beijing. China
is rapidly replacing Russia as the geopolitical bogeyman in the barrage of invective churned out by the American Beltway think tank industry.
Beasts of burden
Even viewed through the lens of the rivalry between the two superpowers, there are growing and legitimate concerns about the debt burden placed on some of the poorer countries in the region.
Back in 2017, a study by the Washington- based think tank the Center for Global Development found that of the 68 countries hosting OBOR-funded projects, 23 were at risk of debt distress, and in eight future OBOR-related financing will “significantly add to
the risk of debt distress”. In addition
to the three Central Asian economies and Montenegro, the list of eight
also included Djibouti, Laos PDR, the Maldives and Pakistan, all of which have been the recipients of large amounts of funding for infrastructure projects.
This of course was before the pandemic. The economic dislocation caused
by lockdowns and disrupted supply chains has put additional pressure on economies across the Emerging Europe region, especially on those outside the European Union, those with a large tourism sector (like Montenegro) and those whose finances were shaky in
the first place. Among the countries identified at risk of debt distress before the pandemic, Kyrgyzstan, Montenegro and Tajikistan have all sought to delay or restructure their debt repayments since.
Another issue with Chinese debt is that loan agreements typically have strict secrecy clauses, which means citizens of the countries involved generally don’t know what their governments have signed up for.
As a March 2021 study by the Center for Global Development think tank says: “Neither policymakers nor scholars know if Chinese loan contracts would help or hobble borrowers,
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because few independent observers have seen them.”
The study analysed 100 of the approxi- mately 2,000 land agreements signed between developing countries and Chi- nese state lenders since the early 2000s. It acknowledges that all lenders have some influence over debtors to maximise their prospects of repayment. However, says the report, “China’s contracts also contain unique provisions, such as broad borrower confidentiality undertakings, the promise to exclude Chinese lend-
ers from Paris Club and other collective restructuring initiatives, and expansive cross-defaults designed to bolster China’s position in the borrowing country.”
Kyrgyzstan
Kyrgyzstan owes $1.8bn to China, which is over 40% of its total external debt, estimated at $4.8bn-5bn. When the coronacrisis hit, Bishkek asked Beijing for debt relief as early as April 2020, after taking out loans for projects linked to the BRI.
In November 2020 – the month after the third revolution in Kyrgyzstan’s post-independence history plunged the
of Economy and Finance’s State Debt Department told Akipress that Kyrgyzstan must pay off $88mn of debt to China this year. As reported by RFE/RL, there are questions over whether Kyrgyzstan will be able to cover its interest payments for the Chinese-financed reconstruction of the Bishkek power plant.
Beijing is unlikely to be very sympathetic to any appeals from Japarov, whose brand of populism has not gone down well with Chinese officials, and whose election victory had a notably cool reception from China. Nor will the attempts to oust Canada's Centerra Gold from the Kumtor gold mine help the country secure investment from other countries.
Mongolia
Back in 2017, the IMF approved
a $5.5bn bailout package for Mongolia that included a three-year extension to a RMB15bn swap agreement with the People’s Bank of China. Three years later, at the start of the pandemic, Mongolia was seen as very vulnerable as a resource-dependent economy whose supply chains and markets
had been disrupted. Mongolia received
“Development found that of the 68 countries hosting OBOR-funded projects, 23 were at risk
of debt distress,and in eight future OBOR-related financing will “significantly add to the risk of debt distress”.”
country into political instability – China allowed the deferral of $35mn until 2022-24 at an interest rate of 2%. Earlier in the year, Kyrgyzstan secured a Paris Club agreement to delay payment of $11mn of debt.
After winning the January presidential election, Sadyr Japarov told state news agency Kabar that if Kyrgyzstan pays its debts to China on time “we will lose many of our properties”. The following month, Ruslan Tatikov of the Ministry
more than $500mn in COVID-19 relief in 2020, of which $326mn was via foreign loans. This pushed public debt towards 70% of GDP. Total public and private debt has reached nearly 300% of economic output.
Overall, the country weathered the pandemic better than expected, and did not slide into default. Rating agency Moody’s, noted in March that Mongolia’s external vulnerabilities declined due
to the faster than expected recovery