Page 15 - bne_Magazine_April_2018

bne April 2018 Companies & Markets I 15
In the two lower income CEE/CIS countries included in the report – Kyrgyzstan and Tajikistan – the levels of debt as a percentage of GDP are forecast to be lower this year at 65.5% and 56.8% respectively. However, the two countries are less able to cope with increased debt burdens than their more affluent peers, and Tajikistan’s debt is increasing dramatically, rising from just 33.4% of GDP in 2015 to an expected 56.8% in 2018. China is Tajikistan’s single largest creditor and accounts for almost 80% of the increase in the country’s external debt between 2007 and 2016, though Dushanbe more recently tapped international markets with its debut $500mn Eurobond in 2017.
As one of China’s neighbours, Tajikistan is considered the “first leg” of some overland OBOR projects, most importantly the Central Asia-China gas pipeline (Line D). While the future of this $3bn project was thought to be in doubt, in January Tajikistan’s energy minister confirmed work had resumed on the Tajik stretch of the pipeline.
“One of the poorest countries in Asia, [Tajikistan] is assessed by the IMF and World Bank to have a “high risk” of debt distress. Despite this, it is planning to increase its external debt, both
at concessional and non-concessional rates, to pay for infra- structure investments in the power and transportation sectors, including those elements supporting OBOR,” stresses the report.
Kyrgyzstan, which also borders China, is in a similar position, with a broad range of new Chinese funded infrastructure proj- ects currently under discussion in addition to the gas pipeline, from the construction of a chain of hydropower plants, to the China-Kyrgyzstan-Uzbekistan railway and new roads. Accord- ing to the report, “While currently considered to be at a “mod- erate” risk of debt distress, Kyrgyzstan remains vulnerable to shocks resulting from a sizeable exchange rate depreciation exacerbated by the scaling up of public investments.”
Immediate marginal impact of BRI lending pipeline
Sandwiched between China and Russia, Mongolia is in a “particularly difficult position” says the report, citing the need for large infrastructure investments to increase productivity and facilitate exports. “If reports that Beijing expects to channel some $30bn in credit to OBOR-related projects
over the next five to ten years are true, then the prospect
of a Mongolia default is extremely high, regardless of the concessional nature of the financing.”
Thousands of kilometres away on the Adriatic coast, tiny Montenegro also has an “enormous” debt problem. At the heart of this is the Bar-Boljare motorway project, which will link the country’s main port to the Serbian transport network. The highway is estimated to be the most expensive road per kilometre in Europe because of Montenegro’s mountainous terrain, and is being funded almost entirely by a €689mn loan from China Exim Bank. Despite the burden this will place
on Montenegro’s finances, the government is reportedly considering additional Chinese funding for a controversial project to expand the Pljevlja power plantafter a deal with the Czech Export Bank fell through in 2016.
Other countries from the region, in particular Belarus –
whose President Alexander Lukashenko said last year there
is “probably no country in Europe closer to China” – and Bosnia & Herzegovina as the site of several potentially Chinese funded power plants, are also set to see a hike in debt as BRI related projects get underway. However, according to the Center for Global Development report, total public debt should remain low enough to mitigate the likelihood of default.
Other countries that are heavily involved in OBOR projects, notably Iran, Turkmenistan and Uzbekistan, are not included in the Center for Global Development analysis, with the think tank claiming they are "all 'not rated' countries that are at
a low risk of debt distress".
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