BEIJING, July 26 (APP): The proposals put forward by China at last week’s meeting of G20 finance ministers and central bank governors on resolving the debt troubles of developing countries are aimed at boosting those countries’ economic development capacity.
This is the fundamental way to help them break out of a vicious cycle of borrowing to return debts. It is also the correct approach for them to achieve independent and sustainable development and address the underlying causes of debt troubles.
The meetings focused on various issues, including global economy and global health, sustainable finance and infrastructure, international financial architecture, international taxation, and financial sector and financial inclusion. How to address the global debt challenge was a key topic at the meeting, China Economic Net (CEN) reported on Wednesday.
Global debt, especially in low- and middle-income developing countries, is rising and there is a need to reach a consensus on assisting low-income countries in managing their debt burdens, according to participants.
Shortly before the meeting, the United Nations released a report showing that global public debt reached a record $92 trillion in 2022. The report also revealed that the number of countries facing high debt levels had risen sharply from 22 in 2011 to 59 in 2022.
“There are certain elements of the international financial activity that are trying to increase their focus in terms of financing, but I think the bottom line is, as of 2023, July, the issue of debt restructuring is really not advancing at all on a scale that is called for and needed,” said Achim Steiner, administrator of the U.N. Development Programme.
Some analysts point out that the growing debt risks of developing countries are closely related to Western countries such as the United States. Western countries and their financial institutions, represented by the US, have been encouraging developing countries to issue a significant number of short-term, high-interest bonds for many years, in pursuit of high profits and returns.
Over the years, many debtor countries have faced enormous pressure to repay their debts and have even had to borrow more money to repay the existing debts. According to World Bank data, out of a total external debt of $696 billion across 49 African countries with available data, multilateral financial institutions and commercial creditors hold nearly three-quarters of the debt.
The significant negative spillover effect caused by US monetary policy is also the primary factor behind the surging debt of developing countries in the past two years.
After the outbreak of the COVID-19 pandemic in late 2019, the US implemented ultra-loose policies, creating conditions for low-interest dollars to flood into Africa and emerging market countries for lending purposes. Since then, it has continued to aggressively raise interest rates and facilitate the rapid return of funds.
The significant influx of US dollars has led to a range of crises in developing countries, including inadequate liquidity, disrupted capital chains, and currency depreciation. Hence, the pressure on countries with debt denominated in dollars has increased sharply.
Historically, similar crises have occurred in emerging markets, such as Argentina, which continues to be plagued by debt troubles. The debt woes of developing countries have been caused by the US and the West and have grown worse over time.
However, the claim of a “debt trap,” which is a discourse trap set by the Western media to criticize China, continues to be propagated as part of their attempts to smear China. In fact, it is not a fair comparison between China and the West when it comes to the total amount of foreign debt and the level of interest rates.
Usually the debt trap claim is made in relation to African countries. But according to the World Bank, Just 12% of African governments’ external debt is owed to Chinese lenders compared to 35% owed to Western private lenders. While the average interest rate on Western private sector loans is 5%, compared to 2.7% on loans from Chinese public and private lenders.
The biggest difference between China’s approach to addressing debt issues and that of the US and the West is that China believes that “It is more important to show people how to fish than just giving them fish”.
At this G20 meeting, China put forward proposals such as “innovating ways of financing infrastructure and expanding the sources and scale of funding”. At the same time, multilateral development banks should always adhere to their core purpose of reducing poverty and promoting development.
They should provide developing countries with greater flexibility to address short-term crises and achieve sustainable development. As emphasized by China’s finance ministry, “The G20 should objectively analyze the causes of debt problems in vulnerable countries, with development being the fundamental solution to these issues.”