The COVID-19 pandemic has caused nations around the world to take unprecedented action, much of which has hamstrung their respective economies Despite agreeing to the deal, China has muddied the waters somewhat by declaring that it will negotiate with borrowers on a bespoke, bilateral basis. In April, G20 nations agreed to freeze bilateral loan repayments for low-income countries until the end of the year, calling on private creditors to follow suit. In the developed world, there is a growing acceptance that this economic damage is likely to hit the poorest nations the hardest. The COVID-19 pandemic has spread rapidly and caused nations around the world to take unprecedented action, much of which has hamstrung their respective economies. It’s not clear whether China is willing to go this far, or whether the government will do so in coordination with an international creditor organisation like the IMF. For many of the countries that are currently struggling economically, rescheduling is unlikely to be enough and debt reductions will be necessary. Some debt relief is likely to be granted, but what form it takes remains to be seen. This is particularly for commodity exporters.”Īccording to The New York Times, Pakistan, Sri Lanka and several African countries are among those to have asked Beijing for a delay, restructuring or outright cancellation of debt since the COVID-19 pandemicīegan. Low-income countries, which have had limited access to commercial credit and have relied significantly on borrowing from China, are particularly vulnerable to debt distress. “Many entered the current crisis with manageable debt loads, but some were already experiencing rising debt risks. “The debt situation of BRI borrowing countries varies,” Scott Morris, a senior fellow at the Centre for Global Development, told Worldįinance. The COVID-19 pandemic could quickly make the financial situation in these countries unsustainable. According to the Washington, DC-based consultancy firm RWR Advisory Group, 15 of the top 20 recipients of BRI loans between 20 had an OECD risk classification of five or above four were given the highest possible risk factor of seven. Many of China’s BRI loans have gone to developing nations. Information collected by the Centre for Economic Policy Research’s policy portal, Vo圎U, found that BRI transport infrastructure projects increased GDP for participant economies by up to 3.35 percent. Notable successes include bringing high-speed railways to Indonesia, strengthening Greece’s maritime infrastructure and boostingĭjibouti’s position as an international trade and logistics hub. Launched in 2013 as Chinese President Xi Jinping’s flagship policy, the BRI aims to facilitate infrastructure development around the world through investments totalling over $1trn. But whether Beijing acquiesces to such a request remains to be seen. Already, reports are circulating that many of the countries involved in China’s Belt and Road Initiative (BRI) need debt relief. This reputation will now be put to the test as many recipient countries struggle to make repayments while managing the economic turmoil wreaked by COVID-19. After the Sri Lankan Government could no longer keep up with payments for the port – which was heavily funded by Chinese investment – it was left with no choice but to sign it away to Beijing on a 99-year lease, along with 15,000 acres of surrounding land. The case of Sri Lanka’s Hambantota Port is a lesson to all countries that remain wary of getting caught in China’s debt trap. Although its money is usually welcomed by developing countries where funds are scarce, Beijing’s accompanying demands can sometimes cause friction. Top 5 economic risk factors that must be consideredĬhina has something of a mixed reputation when it comes to its overseas investment practices. Top 5 ways that the finance industry can prepare for AI.Top 5 emerging fintech hubs across the globe right now.Top 5 ways that GDPR has impacted digital banking.Top 5 financial services that are ripe for automation.Top 5 ways to boost employee engagement and commitment.Top 5 most influential and inspirational US economists.
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