3

Why are African countries willing to accept Chinese loans when they are not seen as sustainable?

Many Chinese loans have higher extended interest rates and short maturities, with heavy collateral that includes commodities, or even important strategic foreign infrastructure.

The authors of the report note that China has started talking about being more transparent and sustainable on their loans in the future. But no clear evidence of this taking place has yet to materialize.

https://bigthink.com/politics-current-affairs/china-loans

Looking at the quote above, it seems that the terms of the loans are not very favorable, yet a lot of African countries are accepting these loans in mass, is there a reason for this? Why are countries willing to risk ending up in a debt trap?

4

What about looking at it through principal agent problem?

From country perspective decision seems bad. However, from politician perspective the decision seems good:

  • he may get some bribe or at least end up with a few companies that owe him a favour
  • he leaves a nice legacy in form of some construction - it stimulates economy (so makes people happy), leaves some nice infrastructure (so makes people happy)... Sure, it leaves also a pile of debt, but debt is a more abstract thing and is a bit harder to pinpoint blame on him. Moreover most of the debt repayment would happen long after he is gone, so he does not have to worry about it.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .