My Take | The West’s privatising of lending to poor nations is laying the real debt traps
- Spreading debt distress and rising extreme poverty in Global South have more to do with Western private-public lending practices, often promoted by Washington, than China
Debt traps are being laid for many low-income and developing countries, but the usual suspect, China, doesn’t actually hold a candle to Western lending institutions.
As Jomo Kwame Sundaram, a Malaysian economist and former United Nations assistant secretary general for economic development, has argued cogently, rising interest rates and lending practices promoted and sometimes pushed on to developing economies by Western institutions such as the World Bank are the real causes of rising “poverty worldwide to pre-pandemic levels, with the poorest worst off”.
The study finds that African countries owe three times more debt to Western banks, asset managers and oil traders than to Chinese lenders and government agencies, and are charged roughly double the interest.
Only 12 per cent of Africa’s external debt is owed to Chinese lenders compared to 35 per cent owed to Western private lenders, according to World Bank data.
Private lenders charged an average of 5 per cent in 2021, compared to 2.7 per cent by Chinese lenders and 1.3 per cent by multilateral institutions. Among those are some of the best-known banks and finance groups on Wall Street.
