An analysis by the Associated Press (AP) found that several poor countries are further straining under economic instability and even collapse due to hundreds of billions of dollars in debt owed to China.
Countries, such as Pakistan, Kenya, Zambia, Laos, and Mongolia, are being consumed by all-time high tax revenues needed to keep schools functional, produce electricity, and pay for food and fuel.
Draining foreign currency reserves in these countries are being used to pay interest on the loans, leaving some countries with mere months before that money is gone.
The situation is further exacerbated by Beijing’s reluctance to forgive debt and its extreme secrecy surrounding its loans and their terms, which has prevented major lenders from stepping in to help.
Findings
Many countries owe as much as 50% of their foreign loans to China. Most of these are devoting more than a third of their revenue to paying off foreign debt. Two of these countries — Zambia and Sri Lanka — have already defaulted, unable to even pay interest on loans financing the construction of ports, mines, and power plants.
I think it is a very complicated issue; Poor countries borrow heavily and are unable to pay; China jumping to the front of the line to get paid ahead of other debts ; yet it won’t budge in taking losses, and the IMF won’t offer low-interest loans, if the money is just going to… https://t.co/YbQBsIqkjv
— Jimmy . D mugerwa (@Jdmugerwa) May 19, 2023
In Pakistan, millions of textile workers have been rendered unemployed due to overwhelming foreign debt and the inability to keep the electricity on and machines running.
In Kenya, thousands of civil servants have not received paychecks as the government is scrambling to save cash to pay foreign loans.
Sri Lanka, which defaulted a year ago, has lost half a million industrial jobs. Simultaneously, inflation has peaked at 50% and more than half the population has slipped below the poverty line.
In Zambia, foreign interest payments are so high there is little funding left for the government, which has forced it to reduce spending on healthcare, social services, and subsidies to farmers. As a result, inflation has hit 50%, unemployment is at a 17-year high, and the national currency — the kwacha — has lost 30% of its value in just seven months.
Experts opine that without a bailout, or unless China softens its loan repayment policies for poor countries, there could be many more defaults and political upheavals globally.
Many borrowers have only a few months’ worth of foreign reserves left to pay for food, fuel, and other essential imports. Mongolia has eight months left, while Pakistan and Ethiopia have only about two.