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China’s Slowing Debt Relief to Poor Countries Raises Concerns and Appeal for Support

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China's Slowing Debt Relief to Poor Countries Raises Concerns and Appeal for Support

(CTN News) – The value of Chinese debt relief decreased by over 50% between 2021 and 2022, as highlighted in a report from the Rhodium Group.

This decline is concerning, especially considering China’s role as the world’s largest bilateral creditor and its involvement in multilateral efforts to standardize support for economically disadvantaged nations.

China holds a central position in discussions surrounding tangible progress in providing debt relief to emerging and frontier markets, both through the Group of 20 (G20)-led “Common Framework” and institutions such as the World Bank and International Monetary Fund (IMF).

The concentration of Chinese Debt Relief in Selected Countries

According to the report, new negotiations on sovereign debt and write-offs of zero-interest loans involving Chinese creditors amounted to $19 billion in 2021. However, these figures dropped to $9 billion in 2022 and declined to $1.7 billion by April 2023, resulting in a total reduction of over 90%.

The study also revealed that while China initially supported multilateral initiatives established during the COVID-19 pandemic to expedite and streamline the process of assisting debt-laden countries, Chinese officials continued to engage in bilateral negotiations and concentrated debt relief in a select few nations.

Angola, in particular, received two-thirds of the deferrals, accounting for around $5 billion out of an estimated $8.2 billion deferred between 2020 and 2021. Pakistan followed with approximately $1 billion in deferrals, along with Kenya and the Republic of Congo, as reported by the research organization.

Although debtor countries did secure substantial deferrals in 2021, when the World Bank’s Debt Service Suspension Initiative (DSSI) transitioned into the G20’s Common Framework, this alone does not fully explain the significant decline in the value of Chinese debt relief.

While countries like Zambia and Chad reached agreements with their creditors, enabling the IMF to disburse additional funds, Ethiopia and Ghana still seek restructuring assurances. China is the largest bilateral lender to these countries, so its reluctance to provide such reassurances has hindered progress.

The Rhodium Group’s report suggests that Chinese assistance has slowed the arrival of IMF funding and the attainment of debt restructuring agreements. It notes that negotiations are not proceeding swiftly, indicating a lack of urgency from China’s financial institutions.

China’s Focus on Writing Off Zero-Interest Loans and Future Implications

The report further highlights China’s most visible action on debt relief, which involves writing off zero-interest loans. However, it warns that the availability of such loans for China to write off will diminish in the coming years.

The decline in Chinese debt relief and the concentration of support in select countries raise concerns about the effectiveness of multilateral efforts and the implications for emerging markets.

It emphasizes the need for China to actively engage in comprehensive debt restructuring processes and support the efforts of debtor nations to achieve financial stability and sustainable development.

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