West's debt trap allegations don't stand up to scrutiny

Earlier this month, during his first official visit abroad since his appointment as China's foreign minister, Qin Gang vehemently denied allegations that his country's aid to African nations is a "debt trap".

Indeed, for several years, the problem of developing countries' sovereign debt has been transformed into an ugly political game by Western countries. Some Western economists have even used the term "debt trap", arguing that China is deliberately burdening some countries with debt to dominate their economic and political agendas.

Let's try to sort out the problem of the sovereign debt of developing nations by relying solely on the figures of reputable international institutions.

According to the World Bank's international debt statistics, by the end of 2020, the sovereign debt of 82 low- and middle-income countries held by commercial and multilateral lenders accounted for 40 and 34 percent, respectively, of the total loan book. Bilateral official creditors provided 26 percent of loans, of which China provided just 10 percent.

In addition, in recent years, developing countries have been borrowing from Western private lenders and multilateral institutions at a faster rate. A World Bank analysis showed that between 2015 and 2020, out of a total borrowing of $475 billion, the proportion of new loans was 42 percent from private lenders, 35 percent from multilateral lenders and 23 percent from bilateral lenders.

World Bank calculations also showed that low- and lower-middle-income countries would have to repay $940 billion in principal and interest over the next seven years. Of this, $357 billion is due to Western commercial lenders and $273 billion to multilateral donors, accounting for 67 percent of the total payments. Only 14 percent of the total payments, or $131 billion, must be paid to Chinese lending institutions.

Since the primary political debate is about the debt of African countries, here are the figures specific to this continent. According to a study published by Debt Justice based on data from the World Bank, African governments owe 35 percent of their total sovereign debt to Western banks and just 12 percent to China. Besides, Western banks currently charge around 5 percent interest on their loans, while the average interest rate charged by Chinese development institutions is 2.7 percent.

The situation was greatly aggravated because, to combat inflation, the central banks of almost all developed countries sharply raised their interest rates. For example, seven consecutive significant rate hikes by the US Federal Reserve in 2022 brought them to an unprecedented 4.25 to 4.5 percent. Rates are now at a 15-year high, with no real prospects of stabilizing or falling. All of this dramatically affects the ability of emerging countries to finance their debt burden.

In addition, a strong dollar will further increase the burden of debt repayment. In such circumstances, many borrowers have to issue more bonds with higher interest rates to pay off existing debts, leading to a vicious debt spiral.

Given the problematic economic situation in several African countries, China decided to write off 17 countries' debts on 23 interest-free loans. This was announced on Aug 18 in a special message at the China-Africa Forum meeting by then Chinese Foreign Minister Wang Yi. Details of the restructuring have yet to be announced. China is known have written off debts of $113.8 million in interest-free loans for 15 African countries, including Botswana, Burundi, Cameroon, the Democratic Republic of Congo, Mozambique and Rwanda.

The latest cancellation of African sovereign debt is not unique; China has done so before. Deborah Brautigam, the director of the China-Africa Research Initiative at Johns Hopkins University's School of Advanced International Studies, said that between 2000 and 2019, China canceled at least $3.4 billion of such debt in Africa.

Experts say that since 2000, China has regularly forgiven loans. "This is not a loan cancellation per se, but the cancellation of the remaining unpaid portion of interest-free loans that have reached maturity; that is, if a loan was supposed to be fully paid off over 20 years, but it still has an outstanding balance, they cancel that outstanding balance," said Brautigam.

According to the China Research Initiative in Africa database, between 2000 and 2020, China provided African governments with $160 billion in 1,180 loan commitments, of which two-thirds were for transportation, energy and mining projects. China's largest borrowers were Angola, Zambia, Ethiopia, Kenya and Cameroon.

The stronger countries must help the weaker ones to build a more just world. China has made tremendous progress in eradicating poverty in the country and has accumulated unique experience, and developing countries should study and implement this experience at home. Economically strong countries should join forces to help them and not waste time on meaningless political games.

The author is a former prime minister of Kyrgyzstan. He is the author of the book Central Asia's Economic Rebirth in the Shadow of the New Great Game.