David Malpass, the president of the World Bank, has expressed concern over some of the loans China has made to developing economies in Africa and has called for “more transparent” terms. It follows concerns that countries, such as Ghana and Zambia, are unable to repay their loans to China. However, China claims that such loan is conducted in accordance with international regulations.
Developing nations frequently borrow money from foreign nations or multilateral organizations in order to finance economic growth areas like infrastructure, education, and agriculture. However, large increases in interest rates in the United States and other major countries over the past year are increasing the cost of loan repayments because a significant portion of this borrowing is denominated in foreign currencies such as the U.S. dollar or the euro. If the relative value of their own currency declines, it might be difficult for developing economies to come up with the additional funds that are required.
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It is a “double whammy and it means that [economic] growth is going to be slower”, says Malpass. Thus, addressing this crisis and its repercussions was one of the primary reasons for US Vice President Kamala Harris’s visit to three African countries this week, a visit accompanied by substantial financial support pledges to Tanzania and Ghana, according to reports.
The largest supplier of loans
China has been one of the largest suppliers of loans to developing economies in recent years. According to a recent study conducted by the Kiel Institute for the World Economy, China lent $185 billion (£150 billion) in bailouts to 22 nations between 2016 and 2021. China denies allegations that it exploits other nations with its financial assistance.
Foreign Ministry Spokesperson Mao Ning stated at a press conference this week that China “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.”
Malpass stated that the concerns were not exclusive to Chinese financing and that the situation was improving.
“If you think of the history of Western lending, sometimes it’s not for the full benefit of the people in the countries [being lent to]. Even World Bank loans haven’t always been for the best that could have been done in a country,” he said.
“So what we’re trying to do, and I think everyone should be trying to do, is improve the quality of the lending. “One of the techniques is to unbundle the loan, meaning if there’s an investment project, let’s say you’re building a train, describe the project and what the cost will be. And then separately, arrange the financing,” Malpass added.
“If you bundle them together, it makes it very hard to know, am I getting a good deal on the train or on the financing.”
The rivalry of US-China and “transparency issue”
There is a growing rivalry between the United States and China for influence on the continent, whose abundance of natural resources includes the metals, such as nickel, essential for the batteries used in electric vehicles. US Vice President Kamala Harris stated in Accra, Ghana’s capital, that “America will be guided not by what we can do for our African partners, but what we can do with our African partners”.
Ms. Harris, in highlighting a new nickel processing facility in Tanzania, stated that the project will be supplying the United States and other countries by 2026 and would “help address the climate issue, construct resilient global supply chains, and generate new industries and jobs.”
This collaborative approach was lauded by Malpass, who stated that the competition between the world’s two largest economies was “maybe healthy for developing countries” because it offered alternatives. “What I encourage strongly is that they be transparent in their contracts. That’s been one of the problems; if you write a contract and say ‘but don’t show it to anybody else’, that’s a minus. So get away from that.”
There was also a concern that “for governments in Africa, they shouldn’t be offering collateral as an inducement to make a loan, because it locks it up for generations. That’s been happening with China.”
More concerns over food and energy crisis
The outgoing president of the World Bank is concerned that increasing food, fertiliser, and energy prices as a result of the conflict in Ukraine are eroding government finances in poorer nations. While this could exacerbate their economic difficulties, it is a relief that price hikes have started to subside.
Malpass remarked, “The immediate crisis is over but one thing that’s been left is that countries didn’t use enough fertiliser, so their soil is depleted. Therefore, yields are anticipated to be lower than typical the next year.”
“So, a farmer that was just making ends meet, she didn’t get fertiliser, and now her land is not as productive. And so, where’s the food going to come from for the family and for the community? That’s the big immediate problem. What we’re trying to do is help countries directly with fertiliser [and] with food,” he added.
The World Bank is concerned that these difficulties may exacerbate the unprecedented rise in the number of people living in extreme poverty (on less than $1.90 a day). Due to the coronavirus epidemic, it increased from 8.4 percent to 9.3 percent.