China’s debt write off a friendly gesture to Botswana

13 May 2019

China wrote-off Botswana’s debt in a bid to improve deteriorating diplomatic relations between Gaborone and Beijing, a report by United States researchers has suggested.

The report comes after Botswana and China mended their strained relations. During the administration of former President Ian Khama, the two countries’ diplomatic relations deteriorated over a number of issues; Chinese were kicked out of the country, they were also being denied visas to enter the country as tourists and the decision by Khama to allow the Dalai Lama to visit the country.

The new report which was questioning accusations of debt trap levelled at Beijing by US government also found that contrary to popular belief, assets seizure by China are rare.

The New York based Rhodium Group which analysed 40 cases of debt renegotiations made by China across 24 countries found “asset seizures are a very rare occurrence.”

Instead, the report found debt write-off was the most common outcome, happening in 16 counties, among them Botswana.

The report found that debt forgiveness is often motivated by a desire to improve bilateral relations, and also in cases of acute financial distress.

In addition, the report says, “most of these debt forgiveness cases were accompanied by additional lending in significant volumes.”

It states that “For example, when Beijing wrote off USD7million(about P80 million) of Botswana’s debt at the Forum on China-Africa Cooperation last year, Chinese leaders allegedly offered as much as USD1bn in new infrastructure financing to the country. This means that cases of forgiveness rarely serve to reduce a country’s indebtedness to China.”

Last year, China exempted Botswana from payment of the three interest free loans amounting to a total of RMB Y52.993,400 approximately P80 404 058.  A press release from the Ministry of Finance and Economic Development says the Botswana Government and the Chinese Embassy signed the exemption protocol on August 22.

The report also states that “Interestingly, write-offs are often conceded by Beijing without a formal renegotiation process.”

 Instead, the report says, Beijing usually unilaterally agrees to cancel part of a borrowing country’s debt, even when there are few signs of financial stress on the part of the borrower.

“Such cases of debt forgiveness are therefore probably used to signal support to the recipient countries, and improve bilateral relations,” the report says.

Citing Sudan as another example, the report states that forgiven USD160mn in 2017 represented only 2.5% of the country’s estimated USD6.5bn owed to China.

China wrote off Rmb2.6bn ($386m) of Cuban debt in 2010, and $40m of Zimbabwean loans in 2015, according to Rhodium, which also reported that Angola had refinanced and renegotiated the terms of $21.3bn in Chinese loans in 2015. The Maldives, whose new government said it would ask China to reduce the sums owed, is listed as being under negotiation.

Reports indicate that US officials have warned that China is strategically using overseas financing to gain assets from developing countries. But the study found that outright asset seizure had occurred only in the case of Sri Lanka’s Hambantota port in 2017. “The finding that deferments, refinancing, and new terms are much more common than asset seizures is a good illustration of the limitations of the debt-trap narrative,” said Agatha Kratz, an author of the report. 

Media reports also show that apart from a high-profile example in Sri Lanka, where control of the Hambantota Port was passed to a Chinese company, the only other potential case the researchers could find was in Tajikistan in 2011 where land was transferred to China.