Laos is drowning in debt. China, its biggest creditor by far, says it’s ‘doing its best’ to help

China said it is helping neighbouring Laos to ease its massive debt burden after the Southeast Asian nation revealed that external repayments have nearly doubled and it wants further deferrals to prevent a default.

Beijing has carried out “mutually beneficial cooperation” with developing countries including Laos that involves strong support for economic and social development, a spokesman at China’s Ministry of Foreign Affairs said on Tuesday in a written reply to questions.

“At the same time, it has been doing its best to help relevant countries alleviate their debt burden,” he added.

China is by far Laos’ biggest creditor, accounting for about half of the US$10.5 billion in external government debt. The tiny nation had US$13.8 billion in total public and publicly-guaranteed debt at the end of last year, amounting to 108 per cent of its gross domestic product.

Communist-run Laos has come to the fore after it opened a high-speed rail line with China that cost the landlocked country about US$6 billion. While the development is seen by many as the start of a ramp up in infrastructure that directly connects the world’s second largest economy with Southeast Asia, it has raised concerns of a build-up in debt for smaller nations.



China-Laos railway adds connection from Beijing to Vientiane

China-Laos railway adds connection from Beijing to Vientiane

Laos’ external debt payments last year reached US$950 million, making the country defer US$670 million in principal and interest payments. The World Bank has said in the past that such moves have provided temporary relief in recent years.

The country’s debt issues have emerged as US President Joe Biden’s administration seeks to offer developing nations an alternative to China’s efforts to expand its economic influence. Washington has often cast Beijing’s efforts as “debt-trap diplomacy” as countries like Sri Lanka and Pakistan grapple with repayments.

Sri Lanka fell into default for the first time in its history back in 2022 after its foreign reserves dwindled. Last month, the South Asian nation said it reached final restructuring agreements worth US$10 billion, including with an Official Creditor Committee of bilateral lenders and China’s Exim Bank.

China’s Foreign Ministry spokesman dismissed the “debt-trap diplomacy” allegation, describing it as rhetoric from the US that aims to disrupt Beijing’s cooperation with developing countries.

“It cannot deceive the majority of developing countries,” he said in the written reply.



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