China's loan deals may sow crisis, say IMF, World Bank

They urge more transparency on loans, warn govts against relying too much on debt

WASHINGTON • Increased lending by China to developing nations is increasingly under the spotlight amid concerns that growing debt burdens and onerous conditions could sow the seeds of a crisis.

The global development lenders, the International Monetary Fund (IMF) and World Bank, are calling for more transparency about loan amounts and terms, and cautioning governments against relying too much on debt.

At the spring meetings of the institutions on Thursday, newly installed World Bank president David Malpass warned that "17 African countries are already at high risk of debt distress, and that number is just growing as the new contracts come in and aren't sufficiently transparent".

IMF chief Christine Lagarde said the high debt levels and number of lenders, which do not all conform to international norms, also complicate any future efforts to restructure a country's debt.

"Both the (World) Bank and the IMF are working together in order to bring about more transparency and be better able to identify debt out there, terms and conditions, volumes and maturities," she said at a news briefing.

"We are constantly encouraging both borrowers and lenders to align as much as possible with the debt principles" set by international organisations such as the Paris Club and Group of 20 (G-20), she added.

An IMF report issued this week warned that rising debt levels around the world - government and corporate borrowing - pose a risk to the global economy. China has been lending throughout the developing world as part of its Belt and Road Initiative, especially focusing on resource-rich nations.

But the loans have come under increasing scrutiny.

Mozambique has been engulfed in scandal over US$2 billion (S$2.7 billion) in fraudulent loans that were hidden from the public.

Ms Lagarde said: "It's clear that any debt-restructuring programmes going forward in the years to come will be more complicated than debt-restructuring programmes that were conducted 10 years ago, simply because of the multiplicity of lenders, and the fact that not all public debt is offered by members of the Paris Club."

 
 
 

Mr Malpass acknowledged that lending can help economies grow, "but if it's not done in a transparent way, with good outcome from the build-up of debt, then you end up having it be a drag on economies".

He cautioned that "history is full of those situations where too much debt dragged down economies".

The G-20 has called on the two Washington-based lenders to collect data on debt to get a better handle on the amounts and loan conditions. "I'll be reporting to the G-20 on the progress during our meetings coming up this week, and the keys are to have transparent disclosure of the debt as it is being created, and also then have the focus on good outcomes in terms of quality projects," Mr Malpass said.

As a senior Treasury official in the Trump administration, Mr Malpass had been critical of China's borrowing from the World Bank, and called for China to be more transparent about its multibillion-dollar lending programmes with poor nations.

Since his nomination by US President Donald Trump as World Bank president, and formal approval last week, however, Mr Malpass has adopted a gentler tone.

Mr Malpass said on Thursday he will pursue a "constructive" relationship with China as the development lender reduces funding to the world's second-largest economy.

He said he agreed in a meeting with Chinese President Xi Jinping to work more closely together on the bank's development agenda.

"China has been hugely successful at reducing extreme poverty," Mr Malpass said. "China has some lessons to share and some insights to share with the rest of the world."

AGENCE FRANCE-PRESSE, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 13, 2019, with the headline 'China's loan deals may sow crisis, say IMF, World Bank'. Print Edition | Subscribe