Recent data reveals a significant surge in the debt owed by Pakistan, Sri Lanka, and Bangladesh to China, reaching unprecedented levels.
China emerges as the primary lender for these countries, with a substantial portion of their external debt attributed solely to China. The World Bank’s International Debt Report 2023 highlights China’s pivotal role, particularly through its ‘Going Global Strategy,’ initiated in 1999, aimed at enhancing Chinese investments and lending abroad.
By the end of 2022, low-and-middle-income countries collectively owed China $180 billion, overshadowing their debts to institutions like the International Bank for Reconstruction and Development.
China has notably directed a considerable portion of its recent loans to neighboring countries, while reducing lending to African and South American economies.
In the case of Pakistan, Sri Lanka, and Bangladesh, the escalation of external debt owed to China is striking. Pakistan’s debt soared from $7.6 billion in 2016 to $26.5 billion in 2022, while Sri Lanka’s nearly doubled from $4.6 billion to $8.8 billion during the same period. Similarly, Bangladesh witnessed a significant rise from $0.97 billion to $6 billion. These debts are primarily attributed to funding infrastructure projects.
China’s overall lending has faced constraints due to its economic challenges and defaults from recipient countries, where investments funded by China have not yielded anticipated returns. Sri Lanka’s recent default on foreign debt, amidst food and fuel shortages, underscores the severity of the situation. Interest payments for Sri Lanka, Pakistan, and Bangladesh are projected to consume a substantial portion of their revenues, further complicating their economic outlook.
China’s history of accumulating foreign debt from countries like Japan, Germany, and France during previous decades has seen a reversal, with its external debt stocks declining in recent years due to repayments. Nonetheless, the burgeoning debt owed by Pakistan, Sri Lanka, and Bangladesh underscores the complex dynamics of global borrowing and lending, with significant implications for the economic stability of these nations.