Bangladesh Finance Minister warns developing nations of Chinese loans strapped with debt-trap

Bangladesh’s finance minister Mustafa Kamal said that the developing nations must think twice about Chinese loans as Beijing’s poor lending decisions risk pushing these nations into debt distress, media reports said.

Mustafa also warned developing countries of taking Chinese loans through its Belt and Road Initiative (BRI).

The Minister cautioned Beijing on following a more robust process for evaluating its loans and noted that these kinds of bad loans add strains on indebted emerging markets. It needs to “make a thorough study” before lending to a project, he said.

He made these crucial remarks in an interview with Financial Times where he also pointed out the ongoing economic situation in Sri Lanka, according to ANI.

Notably, Chinese-backed white elephant infrastructure projects (that failed to generate returns) had perpetuated a severe economic crisis, the Economic Times said.

While referring to BRI, the Minister said, “Whatever the situation [that] is going on worldwide, everybody will be thinking twice to agree to this project,” he said in an interview. “Everybody is blaming China. China cannot disagree. It’s their responsibility.”

“After Sri Lanka, we felt that Chinese authorities are not taking care of this particular aspect, which is very, very important.”

Bangladesh is also a participant in China’s BRI and currently, Dhaka owes about USD 4 billion, or 6 percent of its total foreign debt, to Beijing, according to the report.

The Bangladeshi Minister’s remarks came as China’s foreign minister Wang Yi visited Bangladesh over the weekend for meetings with officials including Prime Minister Sheikh Hasina.

In a statement, China called itself “Bangladesh’s most reliable long-term strategic partner” and said the pair agreed to strengthen “cooperation in infrastructure”.

Despite approaching IMF for funds, Kamal said that Bangladesh was not at risk of defaulting like Sri Lanka, ANI reported.

“There is no way to even think of a situation like that.” It must be noted that Bangladesh had a total foreign debt of USD 62 billion in 2021, according to the IMF, with the majority owed to multilateral lenders such as the World Bank, the Economic Times said.

The country owes USD 9bn, or 15 percent, to state lenders from Japan, its largest bilateral creditor, followed by China, according to the report.

Bangladeshi government in June inaugurated the USD 3.6bn Padma Bridge near Dhaka. The project was Chinese-built but financed domestically after international lenders withdrew funding over a corruption scandal, although allegations were never proved.

(Inputs from ANI/Economic Times)