Bangladesh, Sri Lanka, Pakistan, Laos and other sourcing nations are falling further into debt. Stringent IMF criteria is making it nearly impossible to get bailout money. Nations are weighed down by soaring foreign debt as they try to pay down Belt and Road (BRI) loans in the face of rising interest rates. It’s not only the debt service. There’s also the problem of currency devaluation in the face of a record high dollar. That’s depleted countries’ foreign reserves and made it painfully difficult for them to import materials. <b>SRI LANKA: </b> The IMF had agreed to a deal in March that offered Sri Lanka $3 billion over four years, but refused to release the money unless the nation restructures its debt. <ul> <li aria-level="1">In exchange for an emergency loan, the IMF imposed a series of conditions that worsened the nation’s cost-of-living crisis.</li> <li aria-level="1">The mandated shift to market exchange rates, caused Sri Lanka’s currency plunge and drove up the price of imports. Surge prices for imported fuel caused electricity tariffs to jump 165% between June 2022 and February 2023.</li> <li aria-level="1">Since 2016, Sri Lanka has relied on private loans from international lenders to service its external debt to foreign nations. In 2020, the nation defaulted on its foreign loans.</li> </ul> <strong><i>Risk.</i></strong> China is seen as the lynchpin in any debt restructuring since it is the nation’s largest creditor but so far it has been unwilling to take a haircut on its loans to Sri Lanka. China is Sri Lanka’s largest foreign creditor and accounts for about 52% of the bankrupt nation’s bilateral debt. In late September, the Export-Import Bank of China, as an official creditor, reached a preliminary agreement with Sri Lanka on the disposal of Chinese debt. <img width="582" height="221" src="https://insidefashionlive.net/wp-content/uploads/2023/10/Currency-chart-table.jpg" alt="" loading="lazy" srcset="https://insidefashionlive.net/wp-content/uploads/2023/10/Currency-chart-table.jpg 582w, https://insidefashionlive.net/wp-content/uploads/2023/10/Currency-chart-table-300x114.jpg 300w" sizes="(max-width: 582px) 100vw, 582px" /> <b>PAKISTAN:</b> In the current budget estimated target revenue collection in Pakistan is projected to be around $31 billion to $33 billion in 2023-24, however, debt servicing costs exceed $26 billion, per the International Monetary Fund. This leaves insufficient funding for defense spending, government pensions, salaries, the development budget, and subsidies. <ul> <li aria-level="1">Over 80% of bank lending is directed towards the government. Incurring additional debt in this manner creates a debt trap that negatively impacts public welfare and will increase tax burdens in subsequent years, per the IMF.</li> </ul> <strong><i>Risk </i></strong> If this situation persists, Pakistan's inflation rate could exceed 30% per year, impacting on local production and increasing the demand for foreign exchange, potentially causing the national currency to depreciate. <b>BANGLADESH:</b> S&P Global Ratings has lowered Bangladesh’s long-term rating outlook to negative from stable, citing risks the country’s external liquidity position could deteriorate in the next year while foreign exchange reserves remain under pressure. <ul> <li aria-level="1">Bangladesh is struggling to pay for imported fuel because of a dollar shortage and its dollar reserves have shrunk by more than a third since Russia’s invasion of Ukraine.</li> <li aria-level="1">The nation has already had to secure a $4.7 billion loan from the International Monetary Fund this year as it deals with higher costs of imported fuel and food.</li> </ul> <strong><i>Risk</i> </strong> Bangladesh needs favorable trade and financial flows to stabilize its external settings in the next 12 months, per S&P. <b>LAOS:</b> The nation has fallen into a pit of massive debt with average annual public debt servicing payments of $1.2 billion a year over the next five years, according to the Asian Development Bank. Laos’ GDP is projected at $14.09 billion in 2023. <ul> <li aria-level="1">Most of the debt stems for infrastructure projects including the high speed Kunming, China to Vientiane railroad project. The Laotian government, which holds the remaining 30%, incurred $1.9 billion in debt to have it built.</li> <li aria-level="1">Laos currency depreciated by half over the past two years, hitting a record low in September, worsening Laos’s ability to service its debt.</li> </ul> <strong><i>Risk </i></strong> Credit insurance group Credendo downgraded Laos' medium- and long-term political risk rating to the highest category of 7 out of 7, citing the risk of "hidden Chinese debt. <h4><b>Not Just About China</b></h4> About 70 countries in the Global South are in debt distress. Although many of these nations have heavy debt burdens as a result of Belt and Road Initiative projects, this crisis isn’t simply China using ‘debt diplomacy’ that leaves borrower nations in an inescapable debt trap. For some nations, China is only a minor creditor. The problems are often just as much due to internal economic policies as they are to external creditors. Bangladesh owes 53% of its external public debt to multilateral creditors and only 7% to China. Sri Lanka owes 35% to international bondholders but China accounts for 52% of its bilateral debt. Laos owes 49% to China alone, according to data from each nation. <h4><b>Stuck in The Middle</b></h4> The Common Framework, a G20 mechanism for creditors to renegotiate debt, only applies to poor countries. Middle-income ones must negotiate directly with their creditors. With China unwilling to restructure debt held by Sri Lanka, Pakistan, Laos and other nations, these countries sink further into an economic pit that becomes increasingly difficult to exit.