Over the past decade, external debt for low and middle-income countries (LMICs) has surged, outpacing their economic growth and raising serious concerns. This trend is particularly severe in poorer nations, where debt stocks have risen the fastest.
Many low-income countries eligible for International Development Association (IDA) resources face heightened debt vulnerabilities, with over 60% at high risk of debt distress by 2023.
According to the World Bank’s International Debt Report 2023, while external debt for LMICs decreased marginally by 3.4% from $9.3 trillion in 2021 to $9.0 trillion in 2022, it increased by 2.7% for IDA-eligible countries, reaching a record $1.1 trillion.
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The World Bank’s Databank, specifically the International Debt Statistics section, provides data on total external debt stock values (DOD, current US$) each country owes to China. External debt stocks represent the total debt a country owes to foreign creditors.
According to the World Bank, here are the top 10 countries in debt to China (total external debt to China 2022)
1. Pakistan: $26.60 Billion
Pakistan tops the list with a substantial debt of $26.60 billion to China. This debt is largely the result of the China-Pakistan Economic Corridor (CPEC), a flagship project of China’s Belt and Road Initiative (BRI). While the infrastructure development under CPEC, including roads, railways, and energy projects, promises long-term economic benefits, the mounting debt poses significant repayment challenges.
2. Angola: $20.98 Billion
Angola’s debt to China is $20.98 billion, primarily accumulated through loans for rebuilding its infrastructure post-civil war. China has heavily invested in Angola’s oil sector, exchanging loans for oil shipments. Although these investments have helped rebuild the country, they have also created a dependency on Chinese finance and heightened vulnerability to oil price fluctuations.
Read also: 10 least indebted African countries in 2024 – IMF
3. Sri Lanka: $8.84 Billion
Sri Lanka’s $8.84 billion debt to China has been a subject of international scrutiny, especially following the leasing of the Hambantota Port to a Chinese company for 99 years after Sri Lanka failed to repay Chinese loans. This scenario has raised alarms about the potential for debt-trap diplomacy, where excessive borrowing from China could lead to the loss of sovereign assets. Sri Lanka’s economic situation remains precarious, with ongoing struggles to balance development needs with debt repayments.
4. Ethiopia: $6.82 Billion
Ethiopia’s debt to China, amounting to $6.82 billion, has been utilized to develop infrastructure, including the Addis Ababa-Djibouti Railway and various industrial parks. While these projects aim to boost economic growth and industrialization, the debt burden is a cause for concern. Ethiopia’s political instability and the Tigray conflict exacerbate the risks associated with high debt levels, potentially impeding the country’s economic progress and ability to meet repayment obligations.
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5. Kenya: $6.69 Billion
Kenya owes China $6.69 billion, for infrastructure projects such as the Standard Gauge Railway (SGR). The SGR, intended to enhance connectivity and trade within East Africa, has been a contentious issue due to its high costs and questionable economic viability. The debt has led to fears of increased taxation and austerity measures as the Kenyan government struggles to meet repayment schedules.
6. Zambia: $6.08 Billion
Zambia’s debt to China, at $6.08 billion, highlights the country’s dependence on Chinese financing for mining and infrastructure projects. Zambia, rich in copper resources, has seen significant Chinese investment in its mining sector. However, the debt burden has led to economic difficulties, including inflation and currency devaluation. The Zambian government faces the daunting task of renegotiating debt terms while ensuring economic stability and growth.
Read also: Nigeria’s borrowing from China triples to $4bn under Buhari
7. Bangladesh: $6.05 Billion
Bangladesh’s $6.05 billion debt to China has funded various infrastructure projects, including power plants and bridges. While these developments are crucial for Bangladesh’s economic growth and development, the debt levels raise questions about fiscal sustainability. Bangladesh must balance the benefits of Chinese investments with managing its debt levels prudently to avoid financial distress.
8. Lao People’s Democratic Republic: $5.25 Billion
Laos has borrowed $5.25 billion from China, primarily for constructing the Laos-China Railway, part of the BRI. This project aims to transform Laos into a land-linked country, boosting trade and connectivity. However, the high cost of the railway and the resultant debt burden pose significant risks to the Lao economy, especially given its limited revenue-generating capacity and dependence on Chinese assistance.
Read also: Chinese loans plunge more African countries into financial crises — Report
9. Egypt: $5.21 Billion
Egypt’s debt to China, amounting to $5.21 billion, has been used for various infrastructure and energy projects, including the New Administrative Capital. These projects are part of Egypt’s broader strategy to modernize its infrastructure and attract foreign investment. However, relying on Chinese loans increases Egypt’s external debt burden, necessitating careful fiscal management to ensure long-term economic stability and growth.
10. Nigeria: $4.29 Billion
Nigeria’s $4.29 billion debt to China is primarily for infrastructure projects such as railways, highways, and power plants. While these projects are essential for Nigeria’s development, the debt burden poses challenges, especially in Nigeria’s volatile oil-dependent economy. Effective debt management strategies are crucial to ensure that the benefits of Chinese investments translate into sustainable economic growth without exacerbating fiscal vulnerabilities.
