IMF Highlights Risked Posed By China's One-Belt-One-Road Initiative

Washington: China's ambitious Belt and Road initiative is an important initiative that can foster regional cooperation, but entails risks like debt sustainability as well, the International Monetary Fund said today.

"The Belt and Road initiative is a very important initiative that we think can foster regional cooperation, including in trade and investment and finance, and it could indeed make a very significant contribution in terms of infrastructure, connectivity to countries and, again, all of this supporting trade and growth," IMF Spokesperson Gery Rice told reporters at his fortnightly news conference.

On the other hand, he said, like other major initiatives of this type, it can entail risks, including issues of debt sustainability and spillovers to other countries, as well as risks for China, including credit risk. "So, the key is to balance, obviously, the potential benefits which we see, with the potential risks," Rice said in response to a question.

He said it depends on how the project would be implemented to ensure debt sustainability and participation of the private sector.  "All of this will help minimise the risks, maximise the benefits. I think that's the objective that we want to see," Rice said.

The IMF, he said, sees large potential benefits from the initiative, but with potential risks as well. "I think there are areas where, in particular, that can guard against those risks. And I think these risks will be discussed at a conference in April," Rice said.

China's “One Belt, One Road” initiative is an ambitious development plan which calls for trillions of dollars to be invested in roads, railways, and ports to create land corridors across the vast reaches of Asia and sea lanes that link China to markets in Europe, and the Middle East.

The United Nations in 2017 had raised a red flag over economic, financial, social and environmental risks of China's Belt & Road Initiative (BRI) across a number of countries that are part of the mega connectivity project.

“Relatively easy access to large foreign loans for infrastructure projects, even if most of them tend to be on a concessional basis, can lead to risks through a slight deterioration in trade balance, undermining macroeconomic and balance of payments stability in small economies with underdeveloped financial markets and less effective debt management,” the UN study said regarding the nature of the Chinese loans.

An example of such a scenario is the development projects in Sri Lanka.  Colombo has run into a huge debt trap by welcoming Chinese funded projects. Sri Lankan debt exceeds $60 billion, more than 10 percent of that is owed to the Chinese. To resolve its debt crisis, the Sri Lankan government agreed to convert its debt into equity and leased out its Hambantota Port for 99 years, effectively giving ownership to the Chinese for the next century.

IMF Managing Director Christine Lagarde will travel to Beijing early next month to attend the joint IMF-PBC, the Peoples Bank of China conference on the Belt and Road Initiative.

She will also meet several Chinese officials. During her visit to China between April 9 and 12, Lagarde will attend the Boao forum and address the gathering during the opening ceremony on April 10. On April 11, she will deliver the Spring Meetings Curtain Raiser speech in Hong Kong.

(The above story first appeared on LatestLY on Mar 30, 2018 11:38 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).