T.HE FOUR TRACKThe 62 km toll road between Masiaka, a business center in Sierra Leone, and Freetown, the country’s capital, promises shorter travel times, fewer accidents and smoother journeys. It is still controversial. The project, which was awarded to the China Railway Seventh Group, increased the country’s external debt according to the China-Africa Research Initiative (over USD 160 million).CARI) at Johns Hopkins University. The work has suffered delays attributed to the pandemic and the need to compensate its owners Concord Times, a local newspaper. The company has also complained that some trucks drive past the toll booths and not through them.
Projects like this have surfaced across Africa and other developing countries over the past 15 years. “It’s no secret … China is by far the largest bilateral creditor to African governments,” said America’s Secretary of State Mike Pompeo in June, accusing it of creating an unsustainable debt burden. However, much else is secret. China usually does not disclose how much it has lent to whom or on what terms. It is also not a member of the Paris Club of Lenders trying to coordinate debt relief among its members to ensure that no lender takes advantage of another’s magnanimity.
Many have wondered how China would play its role in the government’s debt relief initiative agreed in April G20 group of large economies. This initiative will allow 73 of the world’s poorest countries to delay payments on loans G20 governments are releasing resources to fight the pandemic. China, a prominent one G20 members, registered. But would it offer the same conditions as the others? If so, how would you know? It’s hard to prove that China is doing its part if you don’t know how much it borrowed.
However, the past few weeks have brought a pleasant surprise. To monitor the GOn the initiative of the World Bank, the World Bank informed its board that it wanted to disclose more data on the government debt of the eligible countries. Although the board is dominated by its larger shareholders, including China, the bank’s plan met with little resistance. After cross-checking their numbers, the bank has now announced what eligible governments owe to bondholders, multilateral agencies, foreign private lenders and other governments. The countries covered by the data owed China $ 104 billion at the end of 2018. This includes low-interest loans from the Chinese government, semi-low-interest loans from “political banks” such as the China Development Bank and profit-oriented loans from state-owned commercial lenders. The same countries owed $ 106 billion to the World Bank and $ 60 billion to bondholders.
The dates, say Deborah Brautigam and Yufan Huang from CARI, are a “gold mine”. Before they were released, they had to go through public announcements of loan commitments that were matched with reports from Chinese embassies or government documents in the credit country. Her work flowed into a wider range of estimates by Sebastian Horn and Christoph Trebesch from the Kiel Institute for the World Economy and Carmen Reinhart from Harvard University, who became chief economist of the World Bank in May.
The data should not only support research, but also help the public in developing countries, says David Malpass, President of the World Bank. Governments – and “this is not only true for developing countries” – sometimes conclude contracts that do not serve the public interest, he emphasizes. Transparency “helps” to align these contracts with “the interests of people”.
The new numbers confirm Mr. Pompeo’s observation that China is by far the largest bilateral creditor in Africa and in many poor countries elsewhere (see Figure 1). It accounts for around 20% of the total external debt of the 73 governments eligible for the EU G20 initiative (and about 30% of their debt service this year). That’s more than all of the Paris Club lenders, including America, Britain and Japan combined. But it is also smaller than the estimate of over 25%, based on figures from Mr. Horn, Ms. Reinhart and Mr. Trebesch. Indeed, their estimates for individual countries often exceed those of the bank many times over (see Figure 2).
What explains the gap between Ms. Reinhart’s research and her new employer’s data? Part of it can reflect the difference between announcements and payouts. Just because China says it will lend money doesn’t mean that the entire amount will be paid at once (or ever). But even if Mr. Horn, Ms. Reinhart, and Mr. Trebesch look at the bank’s numbers on commitments rather than debt, they find some missing credits, indicating incomplete data.
Another reason for the gap could be that the bank excludes some government-owned and special-vehicle debt, which is not guaranteed by the government. In other contexts, the bank looks at scenarios in which state-owned companies fail or public-private partnerships become angry and the government has to intervene. When counted as government debt, the bank’s estimates approximate Horn-Reinhart-Trebesch’s figures.
However, such thought experiments could sometimes broaden the definition of government debt. The financing for the controversial toll road in Sierra Leone is to be repaid, for example, from toll revenues and not from tax revenues. The government would only be burdened if these tolls were insufficient. The World Bank doesn’t seem to see it as government debt – but it does CARI.
The bank’s Chinese loan numbers are not always below external estimates. For Burkina Faso, the Central African Republic and Liberia, they are much higher. Ms. Bridegroom says that this is because they include loans from Taiwan. China’s critics, including Mr. Pompeo, may suspect that actual lending is higher than the bank suggests. But even they would not want to tell the People’s Republic what Taiwan actually owes. ■
This article appeared in the Finance & Economy section of the print edition under the heading “The Debt Fee”.