Pakistan, which is the centrepiece of China's ambitious multi-nation BRI project, is among eight countries that will suffer from Chinese debt "overhangs", leading to the impediment of sound public investment and economic growth.
Pakistan, which is the centrepiece of China’s ambitious multi-nation BRI project, is among eight countries that will suffer from Chinese debt “overhangs”, leading to the impediment of sound public investment and economic growth, a report has said. The One Belt One Road Initiative is adding more to Pakistan’s debt distress, as China is charging relatively higher interest rates, Center for Global Development said in a report.
It noted that Pakistan has interest-free loans from China’s banks in some cases and fully commercial rate in the case of the Ethiopia-Djibouti railway, putting Pakistan in high-risk debt-to-GDP threshold. “Unlike the 2-2.5% ‘concessional rate’ given to some China Exim Bank customers, reports indicate that some of Pakistan’s loans reflect rates as high as 5%,” the report said.
Besides Pakistan, the report said, Djibouti, The Maldives, Laos, Montenegro, Mongolia, Tajikistan, and Kyrgyzstan are the countries the most vulnerable countries. Countries such as Sri Lanka, Afghanistan, and Bhutan also have significant debt risks, but not as bad as the other eight.
Adopted in 2017, China-led BRI spans in at least 68 countries with an announced investment as high as $8 trillion for a vast network of transportation, energy, and telecommunications infrastructure linking Europe, Africa, and Asia. The report has said that the primary concern with the BRI project is that the $8 trillion initiative will leave countries with debt overhangs that will impede sound public investment and economic growth more generally.
The report said that understanding debt sustainability of the project is important as there is also “considerable evidence” indicating significant negative impacts on countries and their people when governments incur too much debt. There are some signs that Chinese officials are moving toward greater policy coherence and discipline when it comes to avoiding unsustainable debt, it added.