Pak, Sri Lanka, Bangladesh, Laos & More: China’s ‘Debt-Trap’ Pushing Vulnerable Countries to Economic Crisi – News18


After Pakistan and Sri Lanka falling under severe debts of Chinese loans, Bangladesh has now sounded an alert, warning developing countries to think twice over taking more loans through China’s Belt and Road Initiative (BRI) as global inflation and slowing growth add to the strains on indebted and vulnerable emerging markets.

Pakistan’s economic crisis is well known and Sri Lanka also just saw a dramatic change in government followed by massive revolt its public over deep financial burdens, sky-rocketing inflation triggered by depleting foreign reserves. Nepal, too, is said to be foreseeing an economic crisis and earlier this year banned   the import of vehicles and other luxury items, due to declining foreign exchange reserves.

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One factor common between these countries is that they are all part of China’s BRI global infrastructure development strategy aimed at investment by Beijing in nearly 70 countries. The Chinese government, through BRI, invests in building ports, roads, bridges, dams, power stations, railroads, etc. China is known to have BRI deals with all three countries, two of which are already reeling under a massive economic crisis and the remaining foreseeing one.

The BRI ‘Trap’

According to Organisation for Economic Co-operation and Development (OECD) China’s Belt and Road Initiative (BRI) development strategy aims to build connectivity and co-operation across six main economic corridors encompassing China and: Mongolia and Russia; Eurasian countries; Central and West Asia; Pakistan; other countries of the Indian sub-continent; and Indochina.

China has been accused of being a silent orchestrator of the economic crisis that the two South Asian countries – Sri Lanka and Pakistan – are reeling under. While experts have been warning for many years the low- and middle-income countries against China’s “debt-trap” diplomacy, Beijing has been able to lure vulnerable countries like Sri Lanka and Pakistan with irresistible investments plans to bag billions of dollars worth of projects under the BRI initiative.

The years of unsustainable Chinese loans coming back to haunt struggling economies, prompting International Monetary Fund (IMF) to come to their rescue, is what experts term as China’s “debt-trap diplomacy”.

After Sri Lanka & Pak Collapse, Experts Sound Alarm Over China’s ‘Debt-Trap’

With Sri Lanka’s crisis, experts have warned that other countries in the region also need to call upon their own governments to draw the necessary lessons from the Island nation.

Dr Rasul professor in the Department of Economics at the International University of Business Agriculture and Technology (IUBAT) cautioned against overdependence on foreign loans, which he felt could make countries vulnerable, reported EFSAS (European Foundation For South Asian Studies).

Md. Maruf Mozumder in his article in The Daily Observer also recommended strongly that Bangladesh draw serious lessons from Sri Lanka. He suggested that Sri Lanka’s tendency to sometimes lean more towards China than India was problematic, adding that “it is important to note that due to Debt Trap diplomacy, China is building a geopolitically strong position with huge profits by providing small loans to developing countries in South Asia”.

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It was the “fairytale” spun by China that not only aggravating the debt crisis in countries like Sri Lanka and Pakistan but also left them with billions of dollars worth of unfinished projects, experts said.

“One of the reasons successive Pakistani leaders avoided reform was that they believed it easier to accept the fairytales spun by China. Far from being an economic savior for Pakistan, however, it is now clear that Beijing used the China-Pakistan Economic Corridor (CPEC), foolishly acceded to by PM Shehbaz Sharif’s brother Nawaz, as a mechanism to enslave Pakistan,” a TOI report quoted Michael Rubin, a senior fellow at the American Enterprise Institute, as saying.

Bangladesh, Laos Next Targets of China’s So-Called Debt-Trap?

Bangladesh’s finance minister AHM Mustafa Kamal recently warned developing countries over taking more loans through China BRI initiative.

Kamal, in an interview to Financial Times, pointed to Sri Lanka, where Chinese-backed infrastructure projects that failed to generate returns had led to a severe economic crisis, the finance minister said, “Whatever the situation [that] is going on worldwide, everybody will be thinking twice to agree to this project (BRI).”

“Everybody is blaming China. China cannot disagree. It’s their responsibility,” Kamal said.

Bangladesh last month became the latest Asian country to approach the IMF for help amid prices of commodities surging post after Russia’s full-scale invasion of Ukraine strained its foreign reserves.

The country, a part of China’s BRI initiative, reportedly owes about $4 billion or 6 per cent of its total foreign debt, to Beijing.

Bangladesh is also seeking up to $4 billion more in total from a range of other multilateral and bilateral lenders, including the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank and Japan International Cooperation Agency, Kamal said.

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Laos, a south-east Asian nation, is also at a high risk of default, courtesy China, as the country has taken huge loans from Beijing to build its large-scale infrastructure projects, giving new momentum to the ‘debt trap’ diplomacy.

Laos is at high risk as it is deeply indebted to China for large-scale infrastructure projects, financial experts said in an ANI report.

International rating agency Moody’s downgraded Laos’ credit rating to Caa3 in mid -June, citing “a very high debt burden and insufficient coverage of external debt maturities by (foreign exchange) reserves.” The agency warned that Laos’ default risk will remain high, The Singapore Post reported.

According to the report published by the World Bank in April, preliminary estimates indicated that Laos’ total public and publicly guaranteed debt reached 88 per cent of gross domestic product in 2021. The debt is valued at 14.5 billion US dollars, about half of which is owed to China on loans to fund projects including the China-Laos railway.

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The 418-km Laos-China railway is a joint venture between Beijing Railway group and two other Chinese government-owned companies with a 70 per cent stake and a Laotian state company with 30 per cent.

(With inputs from agencies)

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