The Sheikh Hasina government in Bangladesh has a strong message for China– loans from Beijing cannot be used to arm twist the South Asian nation. China’s lending pattern has come under major scrutiny globally amid the economic turmoil pushing several countries into debt traps.
Dhaka has asked China to relax several conditions that have been attached to its proposed $270 million loan for the Rajshahi Water Supply and Sewerage Authority.
Besides a host of issues relating to interest rates and other financial nitty-gritties including a maturity period of 20 years with a five-year grace period, China also wants its rules to apply in case the loan agreement is cancelled. Typically, Chinese companies alone implement projects for which Beijing provides loans.
Among other things, Dhaka wants the tenure to be extended as well from 20 years to 25.
China has been extensively lending to fuel its Belt and Road Initiative (BRI) as well. Sri Lanka’s default last year has set an alarm bell for many countries that have been seeking Chinese loans. Pakistan too is on the verge of a default.
The South China Morning Post earlier noted that as global interest rates rise and concern about developing world debt risk swirls, issues relating to sustainability and transparency have come to the fore for organisations like the International Monetary Fund (IMF) and World Bank. These bodies are now seeking greater disclosure from borrowers, including on debt contracts with China, it said.
Though China has turned into a major global lender, it is not a member of the Paris Club– an informal group of creditor nations with the aim to strike workable repayment solutions. Not just that. The country is also not part of the Organisation for Economic Co-operation and Development (OECD). Both Paris Club and OECD maintain loan records of official creditors.
Neither does China’s central bank publish data on loans, their riders and currency swap agreements with other foreign central banks nor do the state-owned banks and enterprises of the country furnish information related to lending patterns to other countries.
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