Lack of cooperation hampers relief from China’s debt to Africa
Last month, China joined other G20 members in agreeing to suspend interest payments on all loans owed by dozens of low-income countries, in a bid to ease pressure on developing economies ravaged by the coronavirus pandemic.
Most of these countries are in Africa, and China’s membership was seen as a coup for the G20. But there are reservations about how well China will actually deliver on its part of the deal.
What is the G20 agreement?
The world’s major economies agreed last month to suspend interest payments on all official loans owed by 73 low-income countries – 40 in Africa – until the end of June and extended the repayment period.
“The debt service suspension initiative has provided countries with much needed ‘breathing space’,” said IMF Managing Director Kristalina Georgieva.
As the United Nations called for the suspension to be extended until the end of 2021, the G20 said it would consider the recommendation at the IMF-World Bank meeting next spring “if the economic and financial situation requires “such an extension.
The final press release offered no guarantees.
– What’s the situation right now?
China is Africa’s largest investor, injecting around $ 148 billion into railways, ports and airports in return for securing supplies of oil and commodities such as copper and cobalt , according to data from the China Africa Research Initiative (CARI) at Johns Hopkins University.
These infrastructure projects are built by China lending countries large loans, but Beijing has been criticized in the past for lending too much to poor countries without examining their repayment capacity.
The debt of 73 countries to government creditors, most of whom are part of the G20, reached $ 178 billion last year, of which China owes more than 63%.
However, with the pandemic hitting the global economy, developing countries, and in particular Africa, are feeling even more pain with falling oil prices – a major export for many countries – drying up a crucial source of oil. income and their ability to pay.
What has China accepted and why is it important?
Chinese lenders have suspended debt service payments worth $ 2.1 billion, the highest in the G20. The group suspended a total of $ 5.3 billion in loan repayments by 44 debtor countries. The second largest contributor is France with $ 810 million.
Beijing is by far the biggest creditor of African countries and has so far refused to participate in international frameworks to resolve debt problems. Joining the G20 plan marks a major shift for the world’s second-largest economy, raising hopes for greater transparency on its African debt portfolio.
China has canceled Africa’s debt in the past, but this time it is working with other countries.
But his reasons for joining the deal might not be entirely altruistic, Elling N. Tjønneland, at Chr. Michelsen Institute in Norway, told AFP.
China chose to join “because there is no other option in many cases,” he said. “The borrower is unable to repay the loan, so Chinese lenders will have to find a solution.”
Is it as good as it sounds?
Simply put, no. The $ 2.1 billion figure compares with the $ 13.4 billion owed to China this year by countries eligible for relief, according to the World Bank.
Lack of transparency and coordination among China’s major political banks made it difficult to renegotiate debt, while African countries borrowed more from private lenders than through official bilateral loans.
Private lenders are not covered by the G20 deal and Chinese lenders operate in silos, meaning there is a lack of information on what has been loaned to whom.
“China has said it is fully involved, but does not have a process to get all of its major creditors (…) to work together and take into account the new reality,” the president said. of the World Bank, David Malpass, at an online conference. event organized by the Center for Strategic and International Studies in Washington on December 14.
Additionally, Beijing is not part of the Paris Club, a group that includes most Western countries and multilateral lenders such as the World Bank that shares loan data that allows creditors to jointly negotiate and share the burden. in a fair manner.
“Chinese lenders prefer to approach restructuring quietly on a bilateral basis by tailoring programs to each situation,” Deborah Brautigam of the Johns Hopkins School of Advanced International Studies told AFP.
“This lack of transparency fuels suspicion about Chinese intentions.”
With that in mind, the G20 urges countries to seek concessions from private lenders, but analysts say they will likely play the game hard, not wanting to make concessions for fear of setting a precedent for future debtors.
“About 31% of Africa’s external debt is owed to private bondholders, compared to about 17% to China,” said David Dollar, senior researcher at the China Center at the Brookings Institution.
“So there is a real need for lower interest rates or debt relief from private payers.”
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