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Since the 2008 global financial crisis, China has steadily increased its direct lending to developing countries – often with draconian conditions attached. Debt moratoria during the pandemic, while important, will not solve this problem.
LONDON – The pandemic is confronting highly indebted poor countries with a fateful dilemma. As Ethiopian Prime Minister Abiy Ahmed, a Nobel Peace Prize laureate, lamented last April, leaders have been forced to choose whether to “continue to pay toward debt or redirect resources to save lives and livelihoods.” And when they choose the latter, it is often China – Africa’s biggest bilateral lender – to which they have to answer.
According to Ahmed, a moratorium on debt payments was essential to enable Ethiopia to respond to COVID-19. Such a moratorium would save Ethiopia – one of the world’s poorest countries – $1.7 billion between April 2020 and the end of the year, and $3.5 billion if extended to the end of 2022. An effective COVID-19 response, he noted, would cost $3 billion.
A debt moratorium did save Angola, at least for now. Along with Chad, the Republic of the Congo, Mauritania, and Sudan, Angola was under severe financial pressure, owing to the collapse in commodity prices triggered by the COVID-19 crisis. But, in September, Angola secured an agreement with three of its major creditors – including the China Development Bank (the CDB, to which Angola owes $14.5 billion) and the Export-Import Bank of China (EximBank, owed $5 billion) – to receive $6.2 billion in debt relief over the next three years.
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