Beijing: China, the world’s largest creditor, is increasingly coming under pressure to cancel its huge debt to coronavirus-hit poor countries under the Group of 20 Debt Service Suspension Initiative (DSSI), according to a media report.
World Bank President David Malpass on Monday called on China to cancel debt to coronavirus-hit poor countries, blaming Beijing’s well capitalised official lenders of not fully participating in the DSSI.
“An added factor in the current wave of debt is the rapid growth of new official lenders, especially several of China’s well-capitalised creditors,” Malpass said, addressing an online event hosted by the Frankfurt School of Finance and Management.
“They’ve expanded their portfolios dramatically and are not fully participating in the debt rescheduling processes that were developed to soften previous waves of debt,” Hong Kong-based South China Morning Post quoted him as saying.
The finance ministers of G20 agreed for a “time-bound suspension of debt service payments” to the 77 poorest countries in the world during online spring meetings of the International Monetary Fund (IMF) and the World Bank on April 15 in view of the grim situation faced by these countries due to the coronavirus pandemic.
Under this DSSI, a payment of an estimated USD 12 billion due to be paid between May 1 and the end of 2020 has been rescheduled.
According to a write up in China’s state-run CGTN, over 100 low- and middle-income countries will still have to pay a total of USD 130 billion in debt service in 2020.
In addition, 43 countries have received about USD five billion from the DSSI to fund social, health and economic measures to respond to the pandemic.
China is the biggest bilateral lender for most emerging economies especially lending to hundreds of projects under its Belt and Road Initiative (BRI).
Of the amount due from poor nations taking part in the G20 debt plan between May and December this year, 70 per cent or USD 7.17 billion, was to China. That amount is expected to rise to USD 10.51 billion or 74 per cent of the total, next year if the DSSI is extended, the Post report said on Wednesday.
China faced criticism especially from the G7 countries for classifying large state-owned, government-controlled financial institutions as commercial lenders and not as official bilateral creditors.
Those critics include Malpass, who said China Development Bank (CDB) needed to take part as an official bilateral lender for the DSSI to be effective, the report said.
China has argued that since CDB lends at commercial instead of concessional terms, the bank should be treated as a commercial lender. CDB’s lending to DSSI-eligible countries is heavily concentrated in Angola and Pakistan.
China said that since the G20’s debt freeze agreement was adopted in April, it had received more than 20 requests and reached agreements with more than 10 borrowers by the end of July, without specifying the recipients.
For its part, China has pushed for the World Bank to be included in the DSSI, a move that has so far been resisted by other World Bank/IMF members.
In June this year, Beijing held an online China-Africa Summit on Solidarity against COVID-19 in which the debt situation was discussed, as 40 of the 77 developing countries are located in sub-Saharan Africa.
According to estimates, China’s debt to African countries amounted to USD 150 billion as of 2018. Reports say China holds about a third of Africa’s sovereign debt as China has extended finance to a number of African countries amid concerns about a debt trap and even loss of sovereignty, especially after Sri Lanka handed over its Hambantota port to a state-run Chinese firm in 2017 for a 99 years’ lease as a debt swap amounting to USD 1.2 billion.
The Post quoted Mark Bohlund, senior analyst at REDD Intelligence as saying there was no movement on the DSSI extension and CDB inclusion “largely due to China not wanting to be bullied around on the global stage” .
Bohlund said China did not want to be “forced into effectively footing much of the bill for the DSSI extension without any concessions from the G7 nations in other areas”.
In May this year, the New York Times reported that China is flooded with debt relief requests from several countries including Pakistan, Kyrgyzstan, Sri Lanka and a number of African nations, asking to restructure, delay repayments or forgive tens of billions of dollars of loans coming due this year.
“China faces difficult choices. If it restructures or forgives these loans, that could strain its financial system and infuriate the Chinese people, who are suffering under their own slowdown. But if China demands repayment when many countries are already angry with Beijing over its handling of the pandemic, its quest for global clout could be at risk,” it said.
PTI
