Revelations this week that China is ramping up its bailout lending to poorer countries serve to highlight a potential debt crisis in the developing world. A new study shows China’s rescue lending surged to $104bn between 2019 and the end of 2021 to participants in its Belt and Road Initiative, the world’s largest-ever transnational infrastructure programme.
This figure, while striking, is minor compared to the overall debt levels in emerging markets. The Institute of International Finance, a financial industry association, estimates that total developing world debt rose to a record of $98tn at the end of 2022, after governments and corporations filled their boots in recent years.
With so much debt weighing on the world’s weakest economies, it will not take much to push several into default. Pressures are building. A stronger US dollar is increasing the domestic currency valuation of external debts. Higher interest rates, required to fight inflation, are also raising debt service costs. The war in Ukraine is exacerbating uncertainties.