Chinese debt trap to be discussed as India invites 120 nations to G20 plus summit

New Delhi, Jan 07: Over 120 countries have been invited to a virtual summit by India as the G20 chair next week to discuss the mounting debts and inflationary pressures that have mounted due to COVID-19 and the Russia-Ukraine conflict.

The Voice of Global South Summit will be held on January 12 and 13 and this comes in the wake of global concerns over China's debt trap, which had affected many countries including those in the immediate neighbourhood.

At a briefing, Foreign Secretary Vinay Mohan Kawatra said that restructuring development and aid finance and how to avoid falling into "debt traps" will be discussed at the summit's finance ministerial meetings.

"In terms of the kind of challenges the developing world faces, a large segment has a finance dimension to it, whether it is the fundamental question of 'how do you finance your development' or in doing so, 'how do you avoid falling in debt traps'," he also said.

The Foreign Secretary made a veiled reference to China which has been criticised for the debt traps it sets thanks to lending practices it has adopted in countries such as Sri Lanka which in turn have left these countries in dire straits.

The IMF data would show that China was the biggest bilateral lender to the International Development Association (IDA) countries such as Bangladesh, Pakistan and other nations. China accounted for 49 per cent of the bilateral debt stock which was up from 18 per cent in 2020.

"The debt crisis facing developing countries has intensified," said World Bank Group President David Malpass. "A comprehensive approach is needed to reduce debt, increase transparency, and facilitate swifter restructuring-so countries can focus on spending that supports growth and reduces poverty. Without it, many countries and their governments face a fiscal crisis and political instability, with millions of people falling into poverty."

Over the past decade, the composition of debt owed by IDA countries has changed significantly. The share of external debt owed to private creditors has increased sharply. At the end of 2021, low- and middle-income economies owed 61% of their public and publicly guaranteed debt to private creditors-an increase of 15 percentage points from 2010. IDA-eligible countries owed 21% of their external debt to private creditors by the end of last year, a 16-point increase from 2010. Also, the share of debt owed to government creditors that don't belong to the Paris Club (such as China, India, Saudi Arabia, United Arab Emirates, and others) has soared. At the end of 2021, China was the largest bilateral lender to IDA countries, accounting for 49% of their bilateral debt stock-up from 18% in 2010. These developments have made it much harder for countries facing debt distress to quickly restructure their debt, a press release by the World Bank also said.

"Increasing burdens on developing countries in areas like mounting debt, inflationary pressures are beginning to take a toll on the structural parameters of their (developing nations') economy. Often, these concerns of the developing world do not receive due attention and space on the global stage," Kawatra said at the briefing.