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Eurasia
March 9, 2018 www.intellinews.com I Page 23
Chinese loans hike risk of debt distress in Central Asia
bne IntelliNews
Eight countries including three Central Asian economies and Montenegro are at rising risk
of debt distress as they take out Chinese loans extended under the One Belt One Road Initiative (OBOR).
Adopted in 2017, the OBOR is a global initiative spanning three continents that aims to link China to Western Europe by reviving overland and maritime trade routes. Under the OBOR up to $8 trillion is planned to be invested into transport, energy, and telecommunications infrastructure across Asia, Africa and Europe.
However, a new study by the Washington-based think tank the Center for Global Development finds that of the 68 countries hosting OBOR- funded projects, 23 are currently at risk of debt distress, and in eight, future OBOR-related financing will “significantly add to the risk of debt distress”.
The eight countries most at risk include Kyrgyzstan, Mongolia and Tajikistan in Central Asia, as well as Montenegro, and four other economies — Djibouti, Laos PDR, the Maldives and Pakistan. All of these countries have been the recipients of large amounts of funding
for infrastructure projects and as a result the proportion of external debt that is owed to China and its banks will rise, sometimes dramatically, says the report published on March 4.
“[I]mportant questions arise on sustainable financing of the initiative within OBOR countries, and how the Chinese government will position
Risk including planned OBOR projects.
itself on debt sustainability. Infrastructure financing, which often entails lending to sovereigns or the use of a sovereign guarantee, can create challenges for sovereign debt sustainability,” write the report’s authors.
“It remains unclear the degree to which OBOR,
a Chinese-led bilateral initiative that seeks to employ some multilateral mechanisms to achieve its financing goals, will be guided by multilateral standards on debt sustainability.”
“Our research makes clear that China needs to adopt standards and improve its debt practices – and soon,” said Scott Morris, a senior fellow at the Center for Global Development and a co-author of the paper.
Specifically, there are concerns that the sheer volume of debt that some countries involved in the OBOR will owe to China will leave countries with debt “overhangs” that will “impede sound public investment and economic growth more generally”. The political implications of increased dependence on Chinese credit are also a concern; tensions are already evident for example in Sri Lanka, where activists clashed with police over the new industrial zone at Hambantota port.
Yet these concerns have often been ignored given the large and growing need for infrastructure investment in many countries around the world. The Asian Development Bank (ADB) has estimated an infrastructure gap — the difference between the amount being spent on infrastructure
and the amount that’s needed to keep up with