Chinese loans for infrastructure cause debt ballooning in Myanmar, Laos

The China-Laos high-speed railway costs $6 billion

Chinese infrastructure projects for its Belt and Road Initiative financed by state-guaranteed loans turn out to become downright debt traps in developing countries in Southeast Asia such as Myanmar and Laos.

Myanmar’s auditor general Maw Than in a recent news conference cautioned government officials about continued reliance on Chinese infrastructure loans that come with high rates of interest.

Myanmar’s current national debt stands at about $10 billion, of which $ 4 billion is owed to China, Than said. This could push Myanmar into to debt trap as it happened with Sri Lanka and a number of African states, he noted.

“The truth is that the loans from China come at higher interest rates compared to loans from financial institutions like the World Bank or the International Monetary Fund,” he said.

“Therefore, I would like to remind the government ministries to be more restrained in using Chinese loans,” Than added.

Myanmar has to repay as much as $500 million annually to China in both principal and interest, which analysts believe will become “burdensome” for the country, even more so as it involvement in China’s Belt and Road Initiative means that it will have to continue taking new debts to finance already agreed-on new large infrastructure projects, including railways, industrial and power projects, urban developments, industrial parks and so-called economic corridors.

Laos facing refinancing problems that could lead to debt crisis

Meanwhile, the government in Laos is in an even more precarious situation as the coronavirus crisis has made it difficult for the country to meet its debt repayment obligations for large Chinese-led infrastructure projects such as the China-Laos high-speed railway and others such as the new six-lane express tollways linking Vientiane and Vang Vieng, in addition to hydro-power projects and mining operations.

With China being the main investor in those projects, Laos risks to become heavily reliant on its norther neighbour in financial and subsequently political terms. The debt that Laos owes China amounts to about 45 per cent of the country’s GDP or about $8 billion, making it one of the most indebted nations to China.

That said, Laos has to pay off $900 million in external debt payments this year, including two of $250 million in the Thai bond market. And from 2021 to 2023, Laos faces $1 billion in external debt servicing payments each year.

Rating agency Fitch in a recent report found that Laos was facing a looming financial crisis as it had become difficult for the country to place sovereign bonds on the international financial market. As a result, Fitch downgraded its outlook for the nation’s debt from “stable” to “negative,” making re-financing even more tedious for the government in Vientiane.



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The China-Laos high-speed railway costs $6 billion Chinese infrastructure projects for its Belt and Road Initiative financed by state-guaranteed loans turn out to become downright debt traps in developing countries in Southeast Asia such as Myanmar and Laos. Myanmar’s auditor general Maw Than in a recent news conference cautioned government officials about continued reliance on Chinese infrastructure loans that come with high rates of interest. Myanmar's current national debt stands at about $10 billion, of which $ 4 billion is owed to China, Than said. This could push Myanmar into to debt trap as it happened with Sri Lanka and...

The China-Laos high-speed railway costs $6 billion

Chinese infrastructure projects for its Belt and Road Initiative financed by state-guaranteed loans turn out to become downright debt traps in developing countries in Southeast Asia such as Myanmar and Laos.

Myanmar’s auditor general Maw Than in a recent news conference cautioned government officials about continued reliance on Chinese infrastructure loans that come with high rates of interest.

Myanmar’s current national debt stands at about $10 billion, of which $ 4 billion is owed to China, Than said. This could push Myanmar into to debt trap as it happened with Sri Lanka and a number of African states, he noted.

“The truth is that the loans from China come at higher interest rates compared to loans from financial institutions like the World Bank or the International Monetary Fund,” he said.

“Therefore, I would like to remind the government ministries to be more restrained in using Chinese loans,” Than added.

Myanmar has to repay as much as $500 million annually to China in both principal and interest, which analysts believe will become “burdensome” for the country, even more so as it involvement in China’s Belt and Road Initiative means that it will have to continue taking new debts to finance already agreed-on new large infrastructure projects, including railways, industrial and power projects, urban developments, industrial parks and so-called economic corridors.

Laos facing refinancing problems that could lead to debt crisis

Meanwhile, the government in Laos is in an even more precarious situation as the coronavirus crisis has made it difficult for the country to meet its debt repayment obligations for large Chinese-led infrastructure projects such as the China-Laos high-speed railway and others such as the new six-lane express tollways linking Vientiane and Vang Vieng, in addition to hydro-power projects and mining operations.

With China being the main investor in those projects, Laos risks to become heavily reliant on its norther neighbour in financial and subsequently political terms. The debt that Laos owes China amounts to about 45 per cent of the country’s GDP or about $8 billion, making it one of the most indebted nations to China.

That said, Laos has to pay off $900 million in external debt payments this year, including two of $250 million in the Thai bond market. And from 2021 to 2023, Laos faces $1 billion in external debt servicing payments each year.

Rating agency Fitch in a recent report found that Laos was facing a looming financial crisis as it had become difficult for the country to place sovereign bonds on the international financial market. As a result, Fitch downgraded its outlook for the nation’s debt from “stable” to “negative,” making re-financing even more tedious for the government in Vientiane.



Support ASEAN news

Investvine has been a consistent voice in ASEAN news for more than a decade. From breaking news to exclusive interviews with key ASEAN leaders, we have brought you factual and engaging reports – the stories that matter, free of charge.

Like many news organisations, we are striving to survive in an age of reduced advertising and biased journalism. Our mission is to rise above today’s challenges and chart tomorrow’s world with clear, dependable reporting.

Support us now with a donation of your choosing. Your contribution will help us shine a light on important ASEAN stories, reach more people and lift the manifold voices of this dynamic, influential region.

$
Personal Info

Donation Total: $10.00

 

 

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