Manoj Ghimire - - - 

Laos is under tremendous financial stress and has headed to the debt trap created by the Chinese loans that are often blamed for being predatory and unsustainable.

Laos is facing the difficult task of repaying the expensive loans taken under the Belt Road Initiative (BRI) even as Chinese influence and dominance continues to grow. All this has made Laotian concerned.

The people of Laos are worried about the economic influence and inroads China has made.

They have begun favouring the US over China now, according to the State of Southeast Asia survey for 2023.

“The reduction in the perception of China’s political and strategic influence is most palpable among Laos and Myanmar,” it said.

Chinese loans are being used to construct dams, railway stations, hydroelectric power plants, hotels and residential complexes.

However, the Chinese-sponsored projects have failed to ensure projected returns. The majority of BRI projects in Laos are associated with energy and transport infrastructure development.

While the expenses incurred are ultimately to be paid by Laos, the Chinese involved in these projects are calling the shots and exerting dominance over the locals.

Many small shops owned by local Laotians in BRI project areas have shut as Chinese workers thronged Laos.

“Laos is so indebted to China that the Chinese can come over here and take our land,” said Nin, a vegetable seller from Vientiane.

Local workers complained of harassment and detention by the Chinese companies doing business in Laos.

The landlocked Laos will not be able to repay Chinese loans against the backdrop of financial problems, high inflation, and deteriorating purchasing power.

“It is on the brink of default,” Anushka Shah, vice president at Moody’s Investors Service.

The external public debt servicing costs swelled from USD 507 million in 2022 to USD 950 million in 2023, creating financial and political crises in the country.

Notably, Chinese loans amount to the half of total external loans Laos has obtained.

While international agencies such as World Bank and Japan International Cooperation Agency (JICA) charge under 1 percent, Chinese loans came at the rate of 4 percent.

Currency depreciation and inflation are adding to the problem of repayment of Chinese loans, said Roland Rajah, director of the Lowy Institute’s Indo-Pacific Development Centre.

“Laos simply borrowed too much for projects that could only pay off over the long term but it had to start making big repayments to China now,” he said.

Chinese debt to Laos has ballooned to USD 10.9 billion in the recent years.

“However, if you add in potential or ‘hidden’ sources of public debt exposure to China, this figure increases to roughly USD17 billion, which is equivalent to 88.9 per cent of Laos’ GDP,” said Bradley Parks, executive director of AidData.

“No country in the world with a higher amount of debt exposure to China than Laos.”

This makes Laos vulnerable to Beijing’s predatory loan policies. “I think Laos is at the mercy of being part of China’s economic plans, whether it is train connections or the hydropower that Laos can produce,” said Erin Murphy, a fellow at Washington-based Centre for Strategic and International Studies (CSIS).

The debt repayment now is going to make things worse for Laos. “Most people will not know the scale of the debt, nor will they associate the debt to Chinese having any direct impact on their lives,” said a Laotian, who wished not to be named for security reasons.

China has claimed the BRI was mutually beneficial and would cause social and economic development in Laos.

However, the Chinese-sponsored projects have failed to ensure projected returns. The majority of BRI projects in Laos are associated with energy and transport infrastructure development.

The BRI projects including the China-Laos rail line have become white elephant and led to 30 per decline in Laos’ currency’s value in 2023 and soaring inflation, said Zachary Abuza, a professor at Washington-based National War College.

“It’s not just debt to China. Laos has a crushing amount of debt. Debt in itself is not bad if it is going to productive uses, but Lao debt has not,” he said.

While China has got access to minerals in Laos thanks to the BRI-led transport projects, Laos may not have received the intended benefits. Rather, it has caused distress.

The second-poorest country in South Asia already witnessed economic downturn thanks to the Covid-led pandemic.

The debt repayment now is going to make things worse for Laos. “Most people will not know the scale of the debt, nor will they associate the debt to Chinese having any direct impact on their lives,” said a Laotian, who wished not to be named for security reasons.

@KH