China, the largest government creditor to emerging economies, said it will forgive 23 interest-free loans to 17 African countries and redirect US$10billion of its International Monetary Fund reserves to nations on the continent.
Foreign Minister Wang Yi announced the cancellations in a meeting last week of the Forum on China-Africa Cooperation, according to a post on the ministry’s website. It didn’t provide details on value of the loans which it said matured at the end of 2021, nor did it state which nations owed the money.
Since 2000, Beijing has announced multiple rounds of debt-forgiveness for interest-free loans to African countries, cancelling at least US$3.4billion of debt through 2019 according to a study published by Johns Hopkins University School of Advanced International Studies. The cancelled debt was limited to mature, interest-free foreign aid loans – with Zambia receiving the most cancellations over that period.
However, the vast majority of China’s recent lending in Africa – such as concessional loans and commercial loans – have never been considered for cancellation, the report added, though some of it has been restructured.
Surging inflation has triggered a wave of interest-rate increases by central banks worldwide, including the US Federal Reserve – which drives up the costs of sovereign loan repayments. Meanwhile, developing nations have amassed a quarter-trillion-dollar pile of distressed debt that threatens to create a historic cascade of defaults by economies which were struggling even before the COVID-19 pandemic.
Beijing, which has come under criticism for its lending practices to poorer nations, accounts for almost 40% of the bilateral and private-creditor debt that the world’s poorest countries need to service this year, according to the World Bank. It has helped forge recent debt-relief agreements, participating in the Group of 20 suspension of repayments during the pandemic.
The announcement last week highlights China’s efforts to build ties with developing nations, particularly through its Belt and Road Initiative. The US and China are competing for influence around the world, and Beijing’s announcement comes at a low point in ties between the two superpowers – with tensions rising following a visit to Taiwan by US House Speaker Nancy Pelosi earlier this month, and Beijing’s support of Russia amid its invasion of Ukraine.
“What Africa wishes for is a favourable and amicable cooperation environment, not the zero-sum Cold War mentality,” Wang said, according to the post.
The IMF’s record US$650billion resource injection last year was intended to help its members weather effects of the outbreak, but fund chief Kristalina Georgieva has urged richer nations to do more by lending their reserves to poorer ones.
China received the equivalent of about US$38.2billion through the IMF’s recent injection of special drawing rights, which work like an overdraft and come with no conditions. Wang said that China is willing to channel US$10billion worth of China’s SDRs through two of the fund’s trusts set up to help poor and middle-income nations.
Since the Forum on China-Africa Cooperation took place in Senegal during November 2021, Beijing has delivered US$3billion of the US$10billion credit facilities pledged to African financial institutions, Wang said in the speech. In addition, this year China has agreed tariff-free entry to 98% of exports from 12 African countries and provided emergency food assistance to Djibouti, Ethiopia, Somalia and Eritrea, he said.