China made headlines after it announced that it waived 23 loans to 17 African countries offered under the Belt Road Initiative (BRI).
However, it turned out that the amount of these loans was not even 1 per cent of its total lending to the continent. Moreover, it is not complete cancellation of these loans but just a waiver of the outstanding balance.
So these loans are likely to be those that were nearing their end. This means the most of the Chinese loans reportedly offered at higher interest rates would continue to add to the economic woes of the poor African countries. Financial experts have asserted that the BRI has become a big contributor to the debt distress in Africa and the rest of the world.
The Boston University’s Global Development Policy Centre, the total waiver to 23 loans could be just $45-610 million, which is a small portion” of the total Chinese lending in Africa. It said of all 1,188 Chinese loans to Africa, the interest-free loans are 212 and they are just 1 per cent of the $2.22 billion of the total loan commitment value of $159.98 billion.
The cancellation move is a diplomatic and symbolic move by China, thus such treatment would not be offered to other loans, it concluded. The BRI is often criticised as debt-trap diplomacy, which China is alleged to be using to take control of vital installations in other countries and expand its military presence.
The economic crisis in Sri Lanka and the deteriorating financial situation in Pakistan have been linked to the stringent conditions of BRI loan repayment. After India took objection to the Chinese spy vessel being docked at Sri Lanka’s Hambantota port—a component of the BRI, many international observers raised doubts about Beijing’s intentions.
Think tank Centre for Strategic and International Studies said while the BRI is crucial for development but “China’s hostile economic practices, military expansion, and coercive political and ideological tactics in Africa should not be ignored.”
West block-led by the US has been critical of the BRI project that has made China the biggest bilateral lender. A report by the US Secretary of States aid the BRI projects became unsustainable due to heavy economic and environmental costs.
“Largely debt-financed, 23 China’s projects in Africa often fail to meet reasonable international standards of sustainability and transparency, and burden local economies with heavy debt and other problems,” reads the report.
The elite group of G7 countries has time and again slammed the harsh terms of financing for the BRI loans. They made frequent references to the “debt trap” that made Beijing uneasy. Moreover, they proposed an alternative to the BRI, which would be sustainable and transparent.
This and what is happening in Sri Lanka and Pakistan caused the world to look at the BRI with suspicion. Thus, Beijing played a trick of loan cancellation in Africa, observers believed.
But they are not surprised. They said China has been cancelling interest-free loans for decades. Hannah Ryder, chief executive of Beijing -based Development Reimagined, said the debt forgiveness move was “the lowest hanging fruit” which helped Beijing hide the harsh repayment conditions of the other bulk BRI loans.
Harry Verhoeven, senior research scholar at Columbia University, asserted that China tried to counter the debt-trap narrative by forgiving the 23 African loans.
“It is not uncommon for China to do something like this [forgive interest-free loans] … now obviously it is connected to the overall debt-trap diplomacy narrative in the sense that clearly there’s a felt need on the part of China to push back,” he said.
Political economist Shahar Hameiri said Chinese loans are given in a hurry, skipping the important part of analysing debt sustainability.
“Chinese lending has contributed to debt problems in a number of countries, although it is not necessarily the only or even the primary cause as in Sri Lanka,” Hameiri said.
Many African countries have voiced their concerns over the unsustainable BRI loans. Zambia has already cancelled its foreign loans which mainly constitute Chinese ones to stop aggravating its debt distress.
This means 14 projects under the BRI are withdrawn. Newly elected Kenyan President William Ruto has blamed Chinese loans for the country’s economic woes though he sought friendship with China.