A dozen poor countries~, are facing economic instability and even collapse as a result of hundreds of billions of dollars in foreign loans, the most of which are from China, the world’s largest and most unforgiving government lender.
the most indebted countries to China, including Pakistan, Kenya, Zambia, Laos, and Mongolia, repaying that debt is eating an increasing portion of the tax money needed to keep schools open, provide energy, and pay for food and fuel. And it depletes the foreign currency reserves that these countries use to pay interest on their loans, leaving some with only a few months until the money runs out.
China’s unwillingness to forgive debt, as well as its great secrecy about how much money it has provided and on what circumstances, has prevented other large lenders from stepping in to assist. On top of that, it was recently discovered that borrowers were obliged to deposit funds in concealed escrow accounts, effectively pushing China to the front of the line of creditors to be paid.
Countries in the AP’s analysis received up to 50% of their foreign loans from China, and most spent more than a third of their government revenue on debt repayment. Zambia and Sri Lanka have already gone into default, unable to make even interest payments on loans used to build ports, mining, and power facilities. Millions of textile workers in Pakistan have been laid off because the country has too much foreign debt and cannot afford to keep the lights on and the machines operating.
In Kenya, the government has withheld payments from thousands of civil servants in order to save money to pay off foreign loans. Last month, the president’s main economic adviser tweeted, “Salaries or default?” Choose your poison.” Since Sri Lanka’s default a year ago, 500,000 industrial jobs have been lost, inflation has reached 50%, and more than half of the country’s population has plunged into poverty in several areas.
Experts believe that unless China softens its position on lending to poor countries, there will be another wave of defaults and political upheavals. “The clock has struck midnight in much of the world,” said Harvard economist Ken Rogoff. “China has moved in and left this geopolitical instability, which may have long-term consequences.” China claims it provided help through prolonged loan maturities and emergency loans, as well as being the largest contributor to a scheme that temporarily suspended interest payments during the coronavirus outbreak. It also claims to have forgiven 23 no-interest loans to African countries, while Aid Data’s Parks claims that these loans are primarily from two decades ago and represent less than 5% of the total amount lent.
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