China’s Belt and Road Initiative (BRI) hopes to deliver trillions of dollars in infrastructure financing to Asia, Europe, and Africa. If the initiative follows Chinese practices to date for infrastructure financing, which often entail lending to sovereign borrowers, then BRI raises the risk of debt distress in some borrower countries, says a report.
The policy paper by Center for Global Development (CGD) assesses the likelihood of debt problems in the 68 countries identified as potential BRI borrowers. They conclude that eight countries (including Pakistan and the Maldives) are at particular risk of debt distress based on an identified pipeline of projects lending associated with BRI.
Because this indebtedness also suggests a higher concentration in debt owed to official and quasi-official Chinese creditors, the paper examines Chinese policies and practices related to sustainable financing and the management of debt problems in borrower countries. “Based on this evidence, it offers recommendations to improve Chinese policy in these areas. The recommendations are offered to Chinese policymakers directly, as well as to BRI’s bilateral and multilateral partners, including the IMF and World Bank.
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