Dozen Poor Countries Face Economic Collapse Due to Chinese Loans, AP Analysis Finds

AP: Dozen Poor Countries Face Collapse Due to Chinese Loans

Beijing, China - A recent Associated Press analysis has revealed that a dozen impoverished countries are on the brink of economic instability and potential collapse due to the burden of massive foreign loans, with China emerging as the primary lender.

Countries such as Pakistan, Kenya, Zambia, Laos, and Mongolia are among the most indebted nations to China, and their debt repayment obligations are consuming a significant portion of their tax revenue, leaving little funds for essential services like education, healthcare, and infrastructure development.

The AP analysis further indicates that these countries are rapidly depleting their foreign currency reserves, which are crucial for paying interest on their loans.

Without a solution in sight, some of these nations have only a few months left before they exhaust their reserves, exacerbating the risk of default.

China's reluctance to forgive the debt and its lack of transparency regarding loan terms and amounts have hindered other major lenders from stepping in to provide assistance.

Additionally, borrowers have been required to deposit cash in hidden escrow accounts, giving China priority over other creditors when it comes to repayment.

Among the countries studied, Zambia and Sri Lanka have already defaulted on their loans, unable to make even the interest payments on the loans used to finance critical infrastructure projects.

The consequences have been dire, with severe economic contraction, skyrocketing inflation, and an increase in poverty rates.

Sri Lanka, for instance, has witnessed a half-million industrial job losses, inflation rates surpassing 50%, and a significant portion of its population falling into poverty.

Experts warn that if China remains uncompromising in its stance on loans to impoverished countries, more defaults and political unrest may follow.

The geopolitical instability resulting from these defaults could have long-lasting effects on global economies.

The situation in Zambia serves as a case study of the consequences of heavy reliance on Chinese loans.

The country, which borrowed billions of dollars over the past two decades to fund infrastructure projects, experienced a boost in its economy but also faced escalating foreign interest payments.

As a result, the Zambian government had to cut spending on essential services, leading to a decline in healthcare, social services, and agricultural subsidies.

Traditionally, major lenders like the United States, Japan, and France have worked out debt forgiveness deals, providing relief to heavily indebted countries.

However, China has operated differently, refusing to participate in multinational talks initially and negotiating directly with borrowers under strict confidentiality clauses.

This lack of transparency has prevented non-Chinese lenders from being fully informed about loan terms and the possibility of China securing preferential repayment treatment.

With time running out, experts are urging China to consider softening its stance on loan repayments to alleviate the burden on poor countries.

The International Monetary Fund (IMF) and the World Bank have called for China to forgive a portion of its loans, but China has insisted that these multilateral lenders should also bear some responsibility and contribute to the relief efforts.

While China denies being an unforgiving lender, it argues that it has provided relief through extended loan maturities, emergency loans, and contributions to interest payment suspension programmes during the COVID-19 pandemic.

China also claims to have forgiven no-interest loans to African countries, although these loans constitute a small percentage of its total lending.

In high-level talks held in Washington, China reportedly considered dropping its demand for loan forgiveness from the IMF and the World Bank in exchange for commitments from these lenders to offer grants and other assistance to struggling countries. However, no announcement has been made since then, and both lenders have expressed frustration with China's stance.

As the economic and social consequences of the debt crisis continue to unfold, some officials are advocating for concessions from all stakeholders involved.

They argue that the debt burden is becoming unbearable and that there is not enough time for traditional lenders like the IMF.