Debt crisis escalating in developing countries, owing to a surge of borrowing from China
China's Belt and Road Initiative Leaves Developing Nations with Soaring Debt
SYDNEY — The world's poorest nations are bracing for a wave of escalating debt as repayments to China reach record highs in 2025, according to a new report by the Australian think tank Lowy Institute.
The Belt and Road Initiative (BRI), launched by China during the 2010s, has financed infrastructure projects, including ports, railways, and roads, across Africa, Asia, and the South Pacific. However, new lending under the BRI has dwindled, and repayments are now exceeding the amount of new loan disbursements, the report reveals.
"Developing countries are grappling with a tidal wave of debt repayments and interest costs to China," remarked Riley Duke, the researcher behind the report. "For the rest of this decade, China will be more a debt collector than a banker to the developing world."
According to World Bank data analyzed by the Lowy Institute, 75 of the world's poorest countries are set to make a combined $22 billion in record-high debt repayments to China this year. Another report estimates $35 billion in total debt repayments to China by these countries.
The Chinese Ministry of Foreign Affairs, when asked about the report, claimed that its investments in developing countries follow international conventions. Ministry spokeswoman Mao Ning (毛寧) countered accusations that Beijing was miring developing nations in debt, stating that "falsehoods cannot cover up the truth."
The mounting debt burden raises concerns about the sustainability of the loans for the recipient countries, potentially leading to a "debt trap" scenario. This high debt burden holds back progress on poverty reduction and development projects, while increasing economic and political instability due to the strain on government budgets.
The report also suggests the possibility of China seeking geopolitical leverage through the debt, especially as the US reduces foreign aid. The two areas where Chinese lending seems to be on the rise are nations that have switched diplomatic recognition from Taiwan to China and countries that have signed loan agreements with China to secure critical minerals.
The debt servicing costs are escalating, leaving less room for spending on essential services such as hospitals, schools, and addressing climate change. In some cases, these countries now spend more on interest payments than on health or education, affecting millions of people living in these countries.
While Chinese lending is overall decreasing across the board, the report highlights exceptions in nations such as Honduras and the Solomon Islands, which received massive new loans after recognizing China diplomatically, and countries such as Indonesia or Brazil, which secured loan deals for battery metals and other critical minerals.
- Industry sectors in developing nations may struggle due to the increased financial burden from loan repayments to China, as limited funds are available for essential services and investments.
- The escalating financial obligations to China, associated with the Belt and Road Initiative, could impact the finance industry in developing countries, as interest costs consume a larger portion of their budgets, potentially hindering economic growth.
