China’s share in poor countries’ debt to the G20 reached 63% – Report

Within the G-20 creditor group, there have been some important shifts characterized by a marked increase in lending by G-20 member countries that are themselves middle-income countries.

China, by far the largest creditor, has seen its share of the combined debt owed to G-20 countries rise from 45 percent in 2013 to 63 percent at end-2019. Over the same period the share for Japan, the second-largest G-20 creditor, has remained broadly the same at 15 percent. China now holds 63% of poor countries’ debt to the G20.

The information was revealed this week by the World Bank in its new International Debt Statistics (IDS) report.

According to the report, the Chinese share in the debt has been steadily increasing in recent years. In 2013, it was only 45% and this figure was already considered at the time as a fairly high level for a country that still considers itself a middle-income nation.

The report indicated that the increase in China’s share goes with an increase in the debt of poor countries. The total external debt of countries eligible for the Debt Service Suspension Initiative (DSSI) adopted in April 2020 by the G-20 countries rose by 9.5% compared to the previous year. It reached a record $744 billion in 2019 and grew twice as fast as that of other low and middle-income countries.

Regional and Country levels

Countries in Sub-Saharan Africa recorded the fastest accumulation of external debt stock in 2019, on average 9.4 percent, propelled by a comparable rise in the debt stock of the major regional economies, including Nigeria and South Africa and other borrowers across the region.

NIGERIA

(US$ million, unless otherwise indicated)

India drove the 6 percent rise in debt stocks in the South Asia region, but the increase was mirrored in the 9.5 percent rise in the external debt stock of Bangladesh, reflecting the implementation of large infrastructure projects, and the 7.8 percent increase in Pakistan, driven by higher inflows of budgetary support from multilateral creditors, including the first disbursement under the IMF Extended Fund Facility in July 2019.

External debt stock rose 6.4 percent in East Asia and the Pacific, excluding China, with the major borrowers (Indonesia, the Philippines, and Thailand) all recording an increase of 5–6 percent and Vietnam recording an increase of 10.9 percent, driven by a 24.6 percent increase in short-term debt.

Debt stocks rose on average 5.3 percent in the Middle East and North Africa region, propelled by a 14.9 percent rise in external debt stocks in the region’s largest borrower, the Arab Republic of Egypt, following an $8 billion Eurobond issuance and the disbursement of the last tranche ($4 billion) from the IMF 2016 Extended Fund Facility.

Equity Flows in 2019

FDI inflows to low- and middle-income countries fell marginally in 2019 but were characterized by a marked change in destination for some of the largest recipients.

Countries in Sub-Saharan Africa recorded a 26 percent increase in FDI inflows in 2019 to $23 billion. Much of this increase is attributable to a slowdown in net divestment from Angola caused by repatriation in the oil sector.

FDI flows remained negative in 2019 (−$4.7 billion) but lessso than in 2 018 (−$7.1 billion). FDI inflows to Nigeria jumped 81 percent to $3.3 billion, accompanied by some diversification from the oil sector, and rose 71 percent in Côte d’Ivoire, to $1 billion, in tandem with the country’s sustained economic growth.

Net FDI inflows to Ethiopia, the largest FDI recipient in Eastern Africa, fell 25 percent to $2.5 billion partly because of instability in some regions, but with broad-based investment across manufacturing and services. FDI inflows to Ghana followed a similar trajectory, down 22 percent to $2.3 billion, but investments remained largely focused on oil and gas facilities.

The maturity structure and borrower composition of external debt stocks is characterized by a stark difference between China and other low- and middle-income countries.

For most low- and middle-income countries, external debt obligations are predominantly long term, and the largest share is owed by governments and other public sector entities.

The composition of China’s external debt stock is atypical for low- and middle-income countries: more than half (57 percent) of the end-2019 external debt stock was short term, and only 15 percent of long-term obligations were accounted for by public sector borrowers.

The combined end-2019 external debt stocks of low and middle-income countries, including China, comprised public and publicly guaranteed debt (40 percent), whereas the obligations of private sector entities without a government guarantees accounted for 33 percent, and short-term debt for 27 percent.

Excluding China significantly alters the picture: the share of short-term debt falls to 16 percent, and the share of long-term debt owed by public and publicly guaranteed borrowers rises to 49 percent.