Rapidly Developing Countries Brace for Debt Crisis Caused by Chinese Borrowing: Document
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A new report published by Australia's Lowy Institute cautions that developing nations face an impending "debt tsunami" as repayments to China escalate to record highs in 2025. The surge is primarily due to the maturation of loans issued under China's Belt and Road Initiative (BRI) during the 2010s.
The BRI, a lending spree that has funded various infrastructure projects across continents, from Africa's deserts to the Pacific islands, has now reached a critical juncture. With new lending diminishing, the focus is shifting towards repayments, placing undue financial strain on many developing countries.
According to researcher Riley Duke, 75 of the world's poorest nations are expected to owe $22 billion in combined debt repayments to China in 2025. This indicates a significant change in China's lending position, as it moves from being a net lender to a net debt collector, with repayments now surpassing loan disbursements.
The escalating debt burden risks undermining essential public spending on vital sectors such as healthcare, education, and climate change mitigation in these countries. The escalation of repayments is also placing immense financial strain on developing economies, potentially increasing their debt vulnerability in the long term.
China's transformation into a debt collector may impact its reputation as a development partner and raise diplomatic concerns, particularly as the United States scales back its foreign aid. There are also concerns regarding China potentially leveraging these debts for geopolitical gains.
Two areas seem to buck the trend: nations that have switched diplomatic recognition from Taiwan to China, such as Honduras and the Solomon Islands, and countries like Indonesia and Brazil, which have signed loan deals with China to secure critical resources like battery metals.
This debt crisis underscores the complex interplay between economic, political, and social factors in the global debt landscape. It highlights the urgent need for sustainable lending practices and thoughtful debt management strategies to preserve the financial stability and future growth prospects of developing countries.
In light of the critical juncture reached by the Belt and Road Initiative (BRI), the Industry of Finance is closely monitoring the shift from China being a net lender to a net debt collector. This transition, with repayments surpassing loan disbursements, presents a significant challenge for the Business sector of developing countries, potentially impairing essential public spending on sectors such as healthcare, education, and climate change mitigation.
