Xi Jinping writes off interest-free loans of African countries

The measure applies only to loans due in 2020. Beijing also postpones interest payments of 77 low-income countries. According to the International Monetary Fund, the World Bank and the Vatican COVID-19 Commission, developing nations cannot tackle the pandemic without the help of creditor countries. Beijing excludes full debt cancellation.

Beijing (AsiaNews) – China will write off all interest-free loans advanced to African countries due this year. Chinese President Xi Jinping made the announcement by videoconference during the Extraordinary China-Africa Summit on Solidarity Against COVID-19.

With respect to commercial sovereign loans, the Chinese leader urged Chinese financial institutions like the Export-Import Bank of China and the China Development Bank to consult to come to some arrangements with African countries.

The two banks are underwriting the Belt and Road Initiative (BRI), China’s global investment plan to become the hub of world trade.

Last week, Beijing said it would delay loan repayments for 77 low-income countries, including those in Africa, as part of the G20 programme.

For the International Monetary Fund and the World Bank, several developing countries, especially in Africa, cannot face the COVID-19 pandemic without help from creditor states.

With loan repayment suspended this year, debtor countries can use the savings to buy food and medical equipment to fight the coronavirus.

The Vatican COVID-19 Commission addressed the problem last month by proposing certain actions to tackle the challenges created by the pandemic. Set up by Pope Francis, the commission has called on creditor countries to cancel the debt of the poorest countries or at least cancel the interest on loans for 2020.

The Chinese government has not provided any information about its foreign loans. According to the Council on Foreign Relations, BRI partners owe China US$ 135 billion. Some of these countries, 67 in total, are in dire economic straits.

One of them is Pakistan, a key partner in China's trade strategy, whose debt totals US$ 21 billion. Another is Djibouti, which hosts China’s only overseas naval base; its foreign debt is equal to 80 per cent of its GDP.

Johns Hopkins University's China Africa Research Initiative has calculated that between 2000 and 2017, China lent a total of US$ 143 billion to 49 African states.

Analysts note that interest-free loans represent only a fraction of China's foreign loans. According to some press reports, Beijing has set restrictions on debt renegotiation with countries in difficulty.

For example, interest-free loans, such as those by EximBank and the China Development Bank, cannot be easily written off or renegotiated. Full debt cancellation is excluded, whilst interest payments suspension or loan restructuring are more likely to entail longer repayment times.