The President of the World Bank, David Malpass, has expressed concerns over China’s loans to African countries, calling for more transparency in the terms and conditions. There are worries that developing countries such as Ghana and Zambia may struggle to repay their debts to Beijing. This concern arises as interest rates increase in the US and other major economies, making loan repayments more expensive for developing countries that often borrow in foreign currencies. Malpass suggests that this “double whammy” will slow economic growth.
US Vice-President Kamala Harris’s recent visit to three African countries aimed to tackle the challenge of the rising debt burden and its consequences. The US has committed to providing financial support to Tanzania and Ghana, while there is a growing rivalry with China for influence in the continent. With its abundance of natural resources, Africa has become an attractive destination for foreign investment. The competition between the world’s two biggest economies could be beneficial for developing countries as it provides different options, according to Malpass.
The World Bank President urges China to be transparent in its lending contracts, as secrecy is one of the problems that African governments have faced with Chinese financing. Offering collateral as an inducement to make a loan is also a problem, warns Malpass, as it locks the loan up for generations. Beijing has become one of the biggest sources for loans to developing economies in recent years, and a new study shows that globally China lent $185bn in bailouts to 22 countries between 2016 and 2021.
China refutes suggestions that it is exploiting other countries with its financial support. The country respects the will of relevant countries, has never forced any party to borrow money, has never forced any country to pay, will not attach any political conditions to loan agreements, and does not seek any political self-interest, according to a spokesperson for the Chinese Foreign Ministry. Malpass believes that the problems are not unique to Chinese financing, and things are improving.
The quality of lending needs to be improved, says Malpass, and one technique is to unbundle the loan. By describing the project and its cost separately from the financing, it is easier to know if a good deal has been made. Bundling them together makes it hard to differentiate between the two. Malpass believes that this technique will improve the quality of lending and ensure that it benefits the people in the countries being lent to.
The outgoing World Bank President is also concerned that higher food, fertiliser and energy prices as a result of the war in Ukraine are sapping government budgets in poorer countries. While this could deepen the economic challenges they face, there is relief that price rises are now starting to ease. The immediate crisis is over, but countries did not use enough fertiliser, and so their soil is depleted. As a result, yields are expected to be lower next year than normal. The World Bank is trying to help countries directly with fertiliser and food.
The World Bank is concerned that these challenges will worsen the first-ever increase in the global extreme poverty rate, which is defined as people getting by on less than $1.90 per day. The rate rose from 8.4% to 9.3% as a result of the coronavirus pandemic. The World Bank is hoping that its upcoming joint Spring Meetings with the IMF in Washington will help it raise more money to tackle its key mission. The needs are much bigger than the amount of flows of money coming in, according to Malpass.
