Countries that borrow from China will suffer long-term consequences

Washington: China alone has provided more loans to poor and developing countries than the three sizeable financial institutions – the World Bank, the International Monetary Fund and the Paris Club – have given so far. But China’s lending outside of the conventional system will increase the burden on the economies of these countries. Janet Yellen, the United States Secretary of the Treasury, warned that these countries would have to face long-term consequences.

The economies of Sri Lanka, Pakistan, Nepal and African countries that borrowed from China are not in a position to recover. Agreements made by these countries with China in return for loans have also become a matter of concern. There has been criticism internationally that China has trapped poor and developing countries in its debt trap. Against this backdrop, US Treasury Secretary Janet Yellen, speaking at an event organised by the Peterson Institute for International Economics, targeted China’s debt regime.

Yellen said that the loans provided by China to poor and developing countries outside the traditional system would increase the burden on the respective countries’ economies. In many of these cases, China is not the only creditor holding back quick and effective implementation of the typical (debt restructuring) playbook. But across the international lending landscape, China’s lack of participation in coordinated debt relief is the most common and the most consequential,’ warned Yellen. It is claimed that China has provided loans ranging from 500 billion to one trillion dollars to poor and developing countries.

The economies of most of the countries that borrowed money from China waned during the Coronavirus pandemic. The grain and fuel shortages caused by the Russia-Ukraine conflict, which has been prolonged for the last six months, are adding to the economic woes of such countries. The financial crisis has not hit the world yet. But local vulnerabilities may prove to be dangerous for the economies of the countries concerned, Yellen’s adviser Brent Neiman warned.