Understanding China's role in recent debt relief operations: A case study analysis

Bon, Gatien; Gong, Cheng

doi:10.1016/j.inteco.2021.02.004

Cited by 5 publications

(1 citation statement)

References 14 publications

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“…Crucially, half of the loans issued to less-developed countries between 2000 and 2017 were missing from the Debtor Reporting System (DRS), the official record of borrower governments' external debt used by the World Bank and the IMF. Recent research has examined these Chinese loans in detail (Bon & Cheng, 2021;Horn et al, 2022;, but mostly focused on the macroeconomic consequences of hidden risk rather than the political drivers of hidden debt.…”

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confidence: 99%

Why hide? Africa’s unreported debt to China

Brown

2023

Rev Int Organ

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Hidden debt is endemic throughout the sovereign credit market and poses a serious threat to global financial stability. Yet, little is known about why governments conceal their liabilities from creditors. I argue that governments intentionally hide debts from international financial institutions (IFIs) to maximize their ability to borrow while avoiding punishment for rising debt burdens. IFIs frequently penalize governments in low-income countries for borrowing beyond their means. By hiding some debt, governments are able to continue borrowing without being disciplined. I test this using recently released data that reveals half of the Chinese loans in Sub-Saharan Africa are missing from sovereign debt records. I find that borrower governments hide loans to avoid violating World Bank debt sustainability thresholds. However, governments hide less debt while under IMF scrutiny so as to reduce the risk that they will be discovered and punished. These findings offer evidence that borrower governments use hidden debt as a strategic tool to pursue fiscal goals. Further, this work reveals the unintended consequences of IFI intervention in less-developed countries, as efforts to ensure fiscal stability increase governments’ incentives to hide debt.

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confidence: 99%