Loans pushing poorest countries to brink of collapse

Photo: AP (Fair Use)

A group of twelve impoverished nations is grappling with economic instability and potential collapse due to the burden of massive foreign loans, predominantly from China, the world’s largest and least forgiving government lender.

An analysis conducted by the Associated Press focused on twelve countries with the highest debt to China, including Pakistan, Kenya, Zambia, Laos, and Mongolia.

The findings reveal that servicing these debts is progressively consuming a larger share of tax revenue that should be allocated to essential services such as education, electricity, food, and fuel.

Moreover, it is depleting foreign currency reserves that these countries rely on to pay interest, leaving them with only a few months before running out of funds, as reported by the Associated Press.

Complicating matters is China’s reluctance to forgive debts and its opacity surrounding loan amounts and conditions, which has deterred other major lenders from offering assistance.

Furthermore, it has recently come to light that borrowers were required to deposit funds into concealed escrow accounts, prioritizing China as the first creditor to be repaid.

According to the AP’s analysis, some countries had as much as 50% of their foreign loans from China, with most of them allocating over a third of government revenue to service the debt.

Zambia and Sri Lanka have already defaulted, unable to meet even the interest payments on loans used for the construction of ports, mines, and power plants.

Written by staff