Chinese Debt Relief in Africa Definitely Helps in the Short Term, But in the Long Term? Hard to Tell Says New Analysis

December 14, 2020

Although China’s debt relief efforts are often downplayed by many of its critics in the U.S. and EU, the fact is that Beijing’s done more to renegotiate and cancel loans to African countries during the current financial crisis than it has previously:

In June, President Xi Jinping announced Beijing would cancel $3.4 billion of zero-interest loans made to African countries between 2000 and 2019.
C hina’s extended $2.1 billion of combined debt relief to developing countries through the G20’s Debt Service Suspension Initiative, more than any other country, according to Reuters.
Research by the Rhodium Group found 18 instances of Chinese debt restructuring talks with borrowers in developing countries this year covering an estimated $28 billion worth of loans.

Near term, according to new analysis by the Oxford China International Consultancy and Development Reimagined, China’s debt relief efforts are indeed providing tangible benefits to borrowing states in Africa. But there are just too many other variables to say conclusively whether these initiatives will help the continent recover from the COVID-19-induced downturn over the long run.

5 Takeaways From the DR/OICC Report on China’s Debt Relief

DEBT SERVICING COSTS: “Annual debt payment costs to China are higher than those to OECD governments, but below costs to multilateral banks.”

DEBT SUSPENSION HELPS FIGHT COVID-19: “While a lack of transparency from China and borrowing countries make estimates difficult, our scenario estimations suggest that overall, up to 40% of finance spent on COVID-19 so far by African countries could be covered by suspending debt payments to Chinese official creditors.”

DEBT CANCELLATION: “In the past, over 2000-2018, China has canceled debt for at least 20 African countries, equivalent to 1.5% of all loans taken out across Africa from China. Most cancellations have been for amounts that are less than 100m. This precedent provides some hope for further action from China in 2021 to suspend debt payments.”

BEYOND CHINESE DEBT SUSPENSION: “The effects [of Chinese debt suspension] will differ depending on which sectors the loans have been focused on – Chinese loans for different sectors have different costs, and projects in different sectors also have different effects on economic growth in the receiving countries. This means the impact of suspension will not necessarily be long-term.”

CHINA’S ONLY ONE ACTOR: “While our analysis clearly shows that China could make a difference, multilateral lenders, other countries and their private sectors must also find ways to do their part – both by providing debt relief themselves but also by shifting how they see “debt risks” going forwards. Without these shifts, action by African governments and the Chinese government could be in vain.”

Download the full report and the entire set of infographics on the Development Reimagined website.

The post Chinese Debt Relief in Africa Definitely Helps in the Short Term, But in the Long Term? Hard to Tell Says New Analysis appeared first on The China Africa Project.

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Rajpriya Gautam