China’s Ministry of Foreign Affairs made news with a series of announcements. Wang Yi, Beijing’s most senior diplomat, promised extensive debt relief for some of the world’s poorest countries.
In addition to increasing food assistance to the continent, Wang committed to no longer demanding repayment of concessional loans that in the recent past had reached maturity, but which 17 African states had failed to pay off.
Outstanding balances on loans mostly extended by China’s Ministry of Commerce (or, less frequently, The Export-Import Bank of China) are thus slated to be canceled.
Details about beneficiaries and credit lines are still to be released. But from an African standpoint this was welcome if somewhat expected news. Wang’s proclamation was timely in light of the growing sense of a looming debt crisis that threatens many developing countries.
This includes a number on the African continent. Combined private and public external debt of African states more than quintupled between 2000 and 2020. Chinese public and private lenders accounted for 12% of the continent’s US$696 billion external debts in 2020.
The continent’s average debt-to-GDP ratios exceeded 50% prior to the pandemic. The most recent Africa Economic Outlook from the African Development Bank expects Africa’s debt-to-GDP ratio to be 70% this year.
As of February 2022, 23 African countries were either in debt distress or at risk of it.
The recent economic meltdown and toppling of the Rajapaksa family regime in Sri Lanka rattled countries from Ghana to South Africa. The events stoked fears that panicked markets might question the solvency of African sovereigns next.
Ghana and South Africa are particularly worried about a vicious cycle of downgrades by the rating agencies, and rising trade imbalances.
Other fears include worsening pressures on domestic currencies and chances of bondholders seeking to exit African markets. These would accelerate financial instability.
The last time China forgave debt in Africa, at the end of 2020, it wrote off US$113 million for various countries. This points to the need not to overstate the debt forgiveness.
Beijing’s announcement was largely already priced into the strategy of many African central banks. Chinese interest-free loans are frequently canceled. And it’s widely understood that when China extends such credit lines, they are rarely ever fully paid back.
Beijing certainly was not counting on the likes of Burundi, Congo or Mozambique to service these debts. And it has regularly rescheduled loans worth billions to African sovereigns in the last 20 years.
Beijing’s gesture will not reduce the increase in sovereign yields (interest on bonds). It will also not ease the downward pressure on exchange rates that so many African states have been experiencing in the last year.
Most of Africa’s debts to China are owed by five states – Angola, Ethiopia, Kenya, Nigeria and Zambia. Any scrapping of outstanding balances could usefully help re-balance their liabilities away from an over-dependence on Beijing.
For Africa’s very poorest countries – say, Madagascar or Niger – cancellations of even US$50 million would make a meaningful difference to their ability to pay for basic services.
But on the whole, the political significance of the latest developments is likely to be greater than their financial impact.
This is poignantly illustrated by the fact that Beijing’s debt relief proposals were accompanied by much fanfare, contrary to previous cancellations. This reflects the pressure China feels it is under in the international debt debate.
The Trump administration accused China of ensnaring developing countries by extending credit to debtors Beijing knows lack the solvency to pay it back. As then-US vice-president Mike Pence put it in 2018.
The scaling down of the ambitions of Xi Jinping’s Belt and Road Initiative (including much reduced credit lines for African states as Beijing prioritizes domestic objectives) has perplexed many on the continent.
Asia Times / ABC Flash Point Economic News 2022.
As the West was or is trying to bankrupt as many countries as possible, China has saved those nations from the bell, avoiding total plundering of African assets all together for now?
Not only saved those African countries but they now have forgiven all their debts to China something the USA would never do . America left devastation of Africa’s resources in its wake large scale contamination of land and ground water -rivers polluted -dead fish -drinking water full of Cancerous heavy metals and ZERO infrastructure whereas China builds railways- roads-motorways- bridges – hospitals etc . Of course this makes the USA look bad and colonialist so they “bad mouth ” China but Africa has seen the Light and most African countries ignore the USA. Invading African countries is not now available… Read more »
The US military control Central Africa, while the French troops dominate Northern Africa for now?
In the CAR the US/French have not actually achieved much in all the years they have been there as American politics is involved until Russian mercenaries were called in they achieved more than the Americans and French combined showing that they ( USA/France ) were there for other reasons not the defence of the country. France was part of the NATO forces that devastated Libya at the behest of the USA when Col. Gaddafi said he was going to bin the US dollar and introduce an African “Gold Standard – not on said the USA – notice all the Muslim… Read more »
Ghadaffi was working hand in hand with Nelson Mandela and formed a threat against the colonial invaders of Africa.
There were more bombs thrown on Libya, compared to all the bombs the allied forces dropped on Nazi Germany during the end of WW III.