Last month, China’s foreign ministry announced that Beijing would waive 23 interest-free loans that matured by the end of 2021 for African countries. However, it did not reveal which countries would benefit or the total amount waived.
In a study released on Monday, Boston University’s Global Development Policy Centre reported it had compiled a database containing 212 interest-free loans totalling US$2.22 billion between 2000 and 2020 in 38 African countries.
The study noted that of the US$159.98 billion China had advanced to African countries in the past two decades, interest-free loans accounted for only 1 per cent.
Authors Jyhjong Hwang, a research fellow, and Oyintarelado Moses, a data analyst and database manager, both at the Boston University centre, estimated that Beijing’s latest round of debt forgiveness would only cover a tiny portion of its lending to the continent.
Moses said that when including the most recent interest-free loans waiver, there were 10 announcements made at United Nations high-level meetings and the Forum on China-Africa Cooperation (FOCAC) from 2005 to 2022 declaring China would cancel debt for African countries.
“[Interest-free loans] provision and cancellation are important diplomatic and symbolic tools in China’s lending practices and are likely to continue to be in the future,” Moses said.
China traditionally waives interest-free loans, which are offered by the China International Development Cooperation Agency (CIDCA), Beijing’s foreign aid agency. In 2018, CIDCA took over the role of China’s Department of Foreign Aid of the Ministry of Commerce. The loans accrue no interest over a five, 10 or 20-year repayment period.
But when it comes to development or concessional lending, China takes a harder stance on restructuring for developing nations under its Belt and Road Initiative launched in 2013. The researchers said the loans were “more akin to foreign policy instruments than bottom line-oriented financial instruments”.
The researchers proposed various estimations for the total cancelled values, depending on different time frames and country criteria and assuming a maturity of at least 10 years.
In one example, they estimated interest-free loans signed in 2000-2012 and maturing in 2021 showed an average loan amount of US$8.38 million, making the 23 loans worth an average US$192.65 million in loans cancelled. In this estimation, the smallest possible value of the cancellations is US$44.76 million and the largest is US$609.57 million.
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A second calculation method assessed interest-free loans signed in 2000-2012 for African nation recipients of G20 Debt Service Suspension Initiative (DSSI) that also received deferrals from China, showing an average loan amount of US$10.96 million, making 23 loans worth an average US$251.99 million in loans cancelled. The amounts cancelled range from US$74.08 million to US$516.69 million.
And in another scenario that considered announcements made during the pandemic, interest-free loans signed in 2010-2012 with maturity dates from 2019-2021 for all African recipient countries show a loan average of US$11.47 million. In this case, 23 loans cancelled would on average constitute US$263.70 million. The smallest possible value of the cancellations is US$132.09 million and the largest is US$402.22 million.
The researchers said the highest estimation of US$609.57 million was around 1 per cent of the US$53.79 billion in overall loan commitments between 2000-2012. If all US$2.22 billion in interest-free loans in the China Loans to Africa Database were cancelled, it would be around 1 per cent of the US$159.98 billion of Chinese loans to Africa committed since 2000.
The study said interest-free loans were mainly used to help countries build public facilities and launch projects to improve people’s livelihood while concessional loans were for manufacturing projects and large and medium-sized infrastructure projects with economic and social benefits, or for plants, machinery and electronic products.
“The cancellations show a consistent and customary practice of forgiving Chinese interest-free loans,” the study said of loans intended to fill the financing gap of medium-sized projects too big for grants but too small for concessional loans.
“As the pandemic has exacerbated the debt situations of countries receiving loans from global financing institutions, including Chinese financing institutions, interest-free loan forgiveness in Africa is in line with China’s general debt relief practices during times of global crises.”
As part of the FOCAC framework, Beijing last year said it had cancelled interest-free loan debts maturing at the end of 2020 for 15 African countries and promised to exempt least-developed African countries’ debt incurred from interest-free loans maturing at the end of 2021.
Cancellations announced in Botswana, Burundi, Rwanda, Cameroon, the Democratic Republic of Congo, the Republic of Congo and Mozambique total at least US$113.8 million, according to the China Africa Research Initiative (CARI) at the Johns Hopkins University School of Advanced International Studies.
Deborah Brautigam, a professor of international political economy at Johns Hopkins University and founding director of CARI, said waiving overdue interest-free loans had become a regular programme that essentially turned one foreign aid instrument coming from China’s central budget (interest-free loan) into another (a grant).
She said other forms of debt restructuring involved banks, which themselves borrowed from bond markets.
“Banks are far more likely to lengthen the repayment period for troubled loans, add a new grace period, or refinance the loan. They will resist write-downs of the principal,” she said.