Exclusive | China’s belt and road lending under more scrutiny after IMF tightens debt limits, experts say
- China is the largest bilateral creditor to developing nations, but it is often criticised in the West for not offering enough transparency around its lending
- But tougher debt monitoring at the International Monetary Fund is pressuring borrowers to disclose more information on Chinese loans, observers say
New transparency demands from global financial institutions aimed at preventing sovereign debt distress are starting to have an impact on China-backed infrastructure projects under the Belt and Road Initiative, experts say.
As global interest rates rise and concern about developing world debt risk swirls, “sustainability” and “transparency” have become buzzwords at organisations like the International Monetary Fund (IMF) and World Bank.
The international bodies, which have traditionally been controlled by the United States and other wealthy Group of 7 nations, are pushing for greater disclosure from borrowers, including on debt contracts with China, former senior staff and analysts say.
The tighter lending standards, like the IMF’s new debt limit policy that came into effect in June last year, are being fuelled by concerns about a potential debt crisis in low-income nations, which has become more pressing following the economic shock of the Covid-19 pandemic.
“Based on assessments of debt sustainability of individual developing countries, both IMF and World Bank have estimated several of them as being on an unsustainable path,” said Otaviano Canuto, senior fellow at the Morocco-based Policy Centre for the New South.
“Under such conditions, both institutions recommend some debt restructuring as a necessary step,” added Canuto, who is also the ex-vice-president and executive director at the World Bank, as well as a former executive director at the IMF.