China lending to sub-Saharan Africa can support growth, but brings risks – Moody's
China’s increased lending to governments in sub-Saharan Africa has the potential to support economic growth, but also amplifies credit risks for countries with high debt, ratings agency Moody’s has said.
“Unless African investment financed by Chinese loans generates substantial economic gains that boost debt servicing capacity of sub-Saharan African governments, the credit implications of such lending include higher debt burdens, weaker debt affordability and weaker external positions,” Moody’s analyst David Rogovic who co-authored the report said.
"China's willingness to renegotiate existing loans and the terms of these renegotiations will influence credit trajectories in sub-Saharan Africa in the coming years.”
Chinese lending to governments in the region rose nearly tenfold to more than $10-billion a year between 2012 and 2017 from less than $1-billion in 2001, with much of the lending focused on infrastructure projects including in the power, transport and communication sectors.
Angola, Congo and Zambia are among the most indebted to Chinese creditors. In Angola, Zambia, Ghana and Nigeria, interest payments already absorb more than 20 percent of revenue.
"A further increase in China's lending - or even maintaining the current pace of lending - should go some way to addressing Africa’s financing gap," Moody's said.
"However, the lack of transparency over the conditions attached to Chinese lending and a lack of reform and governance requirements, compared with those required by multilateral official creditors, may limit the long-term benefits."
The agency said in some cases where Chinese lenders had provided liquidity relief, this came with higher resource concessions, reducing future export earnings.
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