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Poor countries on the brink of collapse from Chinese loans

By Kaieteur News

May 22, 2023

…energy, food security, keeping schools open, being threatened

People jostle each other to buy subsidized sacks of wheat flour in Quetta, Pakistan, Thursday, Jan. 12, 2023, after a recent price hike of flour in the country. An Associated Press analysis of a dozen countries most indebted to China – including Pakistan, Kenya, Zambia and Laos – found the debt is consuming an ever-greater amount of tax revenue needed to keep schools open, provide electricity and pay for food and fuel. (AP Photo/Arshad Butt, File)

With the bulk of Guyana’s external loans being owed to China, the country should take note of what is happening to several poor countries who took loans from the world’s biggest government lender, China – under the country’s Belt and Road Initiative (BRI).

For those unfamiliar, the Belt and Road Initiative is a massive China-led infrastructure project that aims to stretch around the globe. Notably, over 140 countries are a part of the China’s BRI including Guyana.

An analysis done by Bernard Condon of the Associated Press (AP) revealed that a dozen poor countries are facing economic instability and even collapse under the weight of hundreds of billions of dollars in foreign loans, much of them from the Chinese Government.

The countries most indebted to China includes Pakistan, Kenya, Zambia, Laos and Mongolia, who found paying back that debt is consuming an ever-greater amount of the tax revenue needed to keep schools open, provide electricity, and pay for food and fuel and it’s draining foreign currency reserves these countries use to pay interest on those loans, leaving some with just months before that money is gone.

Behind the scenes is China’s reluctance to forgive debt and its extreme secrecy about how much money it has loaned and on what terms, which has kept other major lenders from stepping in to help. On top of that is the recent discovery that borrowers have been required to put cash in hidden escrow accounts that push China to the front of the line of creditors to be paid.

Countries in AP’s analysis had as much as 50% of their foreign loans from China and most were devoting more than a third of government revenue to paying off foreign debt. Two of them, Zambia and Sri Lanka, have already gone into default, unable to make even interest payments on loans financing the construction of ports, mines and power plants.

In Pakistan, millions of textile workers have been laid off because the country has too much foreign debt and can’t afford to keep the electricity on and machines running.

In Kenya, the government has held back paychecks to thousands of civil service workers to save cash to pay foreign loans. The president’s chief economic adviser tweeted last month, “Salaries or default? Take your pick.”

Since Sri Lanka defaulted a year ago, a half-million industrial jobs have vanished, inflation has pierced 50% and more than half the population in many parts of the country has fallen into poverty.

Experts predict that unless China begins to soften its stance on its loans to poor countries, there could be a wave of more defaults and political upheavals.

“In a lot of the world, the clock has hit midnight,” said Harvard economist Ken Rogoff, “China has moved in and left this geopolitical instability that could have long-lasting effects.”


A case study of how it has played out is in Zambia, a landlocked country of 20 million people in southern Africa that over the past two decades has borrowed billions of dollars from Chinese state-owned banks to build dams, railways and roads.

The loans boosted Zambia’s economy but also raised foreign interest payments so high there was little left for the government, forcing it to cut spending on healthcare, social services and subsidies to farmers for seed and fertilizer.

In the past under such circumstances, big government lenders such as the U.S., Japan and France would work out deals to forgive some debt, with each lender disclosing clearly what they were owed and on what terms so no one would feel cheated.

But China didn’t play by those rules. It refused at first to even join in multinational talks, negotiating separately with Zambia and insisting on confidentiality that barred the country from telling non-Chinese lenders the terms of the loans and whether China had devised a way of muscling to the front of the repayment line.

Amid this confusion in 2020, a group of non-Chinese lenders refused desperate pleas from Zambia to suspend interest payments, even for a few months. That refusal added to the drain on Zambia’s foreign cash reserves, the stash of mostly U.S. dollars that it used to pay interest on loans and to buy major commodities like oil. By November 2020, with little reserves left, Zambia stopped paying the interest and defaulted, locking it out of future borrowing and setting off a vicious cycle of spending cuts and deepening poverty.

Inflation in Zambia has since soared to 50%, unemployment has hit a 17-year high and the nation’s currency, the kwacha, has lost 30% of its value in just seven months. A United Nations estimate of Zambians not getting enough food has nearly tripled so far this year, to 3.5 million.

“I just sit in the house thinking what I will eat because I have no money to buy food,” said Marvis Kunda, a blind 70-year-old widow in Zambia’s Luapula province whose welfare payments were recently slashed. “Sometimes I eat once a day and if no one remembers to help me with food from the neighborhood, then I just starve.”

A few months after Zambia defaulted, researchers found that it owed US$6.6 billion to Chinese state-owned banks, double what many thought at the time and about a third of the country’s total debt.

“We’re flying blind,” said Brad Parks, executive director of AidData, a research lab at William & Mary that has uncovered thousands of secret Chinese loans and assisted the AP in its analysis. “When you look under the cushions of the couch, suddenly you realize, ‘Oh, there’s a lot of stuff we missed. And actually things are much worse.’”


China’s unwillingness to take big losses on the hundreds of billions of dollars it is owed, as the International Monetary Fund and World Bank have urged, has left many countries on a treadmill of paying back interest, which stifles the economic growth that would help them pay off the debt.


The Chinese Ministry of Foreign Affairs, in a statement to the AP, disputed the notion that China is an unforgiving lender and echoed previous statements putting the blame on the Federal Reserve. It said that if it is to accede to IMF and World Bank demands to forgive a portion of its loans, so should those multilateral lenders, which it views as U.S. proxies.

“We call on these institutions to actively participate in relevant actions in accordance with the principle of ‘joint action, fair burden’ and make greater contributions to help developing countries tide over the difficulties,” the ministry statement said.

China argues it has offered relief in the form of extended loan maturities and emergency loans, and as the biggest contributor to a program to temporarily suspend interest payments during the coronavirus pandemic. It also says it has forgiven 23 no-interest loans to African countries, though AidData’s Parks said such loans are mostly from two decades ago and amount to less than 5% of the total it has lent.


Guyana has often been warned by the experiences of other countries when it comes to borrowing loans from China and the foreign country funding local projects through procurement models that allow for transfer to government at some point.

President Irfaan Ali however is not threatened by those warnings and instead believes that China has an integral role to play in the development of Guyana. He made his position clear during a virtual interview with a Chinese Journalist, Wang Guan on the China Global Television Network (CGTN), released in January 2023.

Guyana has been borrowing majority of its bilateral loans from the People’s Republic of China.

On December 30, 2022 the Government of Guyana entered into a new contract with the China Export Import (EXIM) Bank for the US$172 million loan to help build the new Demerara River crossing.

Last year, it was reported that the bulk of the country’s loans were owed to the China EXIM Bank.

The Governor of the Bank of Guyana (BoG), Dr. Gobind Ganga in an interview with this publication had said the China Exim Bank accounts for 39.5 percent of the country’s total external debt. Additionally, debt repayment to the China Exim Bank had accounted for 82 percent of debt repayments to bilateral creditors. In the first three months of the year, US$10.6M alone was paid to the Chinese lending institution, up by 1.4 percent. The increase, according to the Central Bank, was as a result of higher principal repayments during the review period.

At that time, Guyana’s total stock of public debt, which comprises both external and domestic debt stood at US$3.248 billion.

China Exim Bank was a major contributor to a loan Guyana had taken to modernise the Skeldon Sugar Factory. This plant was to boost the sugar production figures of the industry; to essentially rescue the sugar sector from its ailing state. Instead, it turned out to be a contributing factor to the poor health of the industry.

In 2017, this newspaper reported that the Ministry of Finance contracted two loans for the Skeldon project. These were from the Export Import Bank of China, the repayment period for which ends in 2025 and the Caribbean Development Bank, the repayment period for which ends in 2033.

On the two loans, the total amount that the Government is paying (principal and interest) is US$3.8M per year.

Another project that was completed and funded by loans from China is the Cheddi Jagan International Airport, Timehri.

The airport expansion contract was signed in 2011 under then President, Bharrat Jagdeo, and was passed through the truncated presidency of Donald Ramotar. However, when the David Granger administration took over in 2015, it said that the very defective plan needed adjustments and changes were made. The decade-old project was awarded to China Harbour Engineering Company (CHEC) for the sum of US$150M – $138M from the China Exim Bank and $12M from the consolidated fund – taxpayers’ money.

Even though the modernisation project has been completed, according to the subject Minister Juan Edghill, works will continue at the airport.


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