David Malpass, the President of the World Bank has expressed worry over the Chinese loans to developing economies on the continent like Ghana and other Africa countries.
The World Bank thus suggested that the terms under which those loans are granted are not transparent. As a result, David Malpass indicated that the terms and conditions need to be “more transparent”.
David Malpass’ concerns come amid worries that countries including Ghana and Zambia are struggling to repay their debts to Beijing. However, China has always maintained that any such lending is done within international rules.
Developing countries often borrow money from other nations or multilateral bodies to finance sectors that will grow their economies such as infrastructure, education and agriculture.
However steep increases in interest rates in the US and other major economies over the last years are making loan repayments more expensive because lots of that borrowing is done in foreign currencies such as US dollars or euros.
It Is a particularly acute problem for developing economies like Ghana which struggles to find the extra money that is required as the relative value of their own currency falls. It is a “double whammy and it means that [economic] growth is going to be slower,” said Mr Malpass.
Challenges and its Consequences
Tackling that challenge and its consequences is one of the main reasons for the visit by US Vice-President Kamala Harris to three African countries. It was a visit that came with big commitments of financial support to Tanzania and Ghana.
There is a growing rivalry with China for influence on the continent, whose abundance of natural resources include the metals, such as nickel, crucial for the batteries needed for technology such as electric cars.
Speaking in Ghana last week, the US Veep said “America will be guided not by what we can do for our African partners, but what we can do with our African partners”.
While highlighting a new nickel processing facility in Tanzania, Ms Harris said the project would be supplying the US and other markets by 2026 and that it would “help address the climate crisis, build resilient global supply chains, and create new industries and jobs”.
That collaborative approach was praised by Mr Malpass who said the competition between the world’s two biggest economies is “maybe healthy for developing countries as it provided different options”.
“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 warning 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.”
Mr Malpass
Beijing has become one of the biggest sources for loans to developing economies in recent years. A new study led by the Kiel Institute for the World Economy shows that globally China lent $185bn (£150bn) in bailouts to 22 countries between 2016 and 2021.
Meanwhile, at a press conference this week Foreign Ministry Spokesperson Mao Ning said 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”.
However, Mr Malpass noted the problems are not unique to Chinese financing but things were 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. 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. 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.”
Mr Malpass
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