GS Paper II & III

News excerpt:

According to the latest International Debt Report released by the World Bank, India and China follow contrasting external lending strategies.

More details on news:

• According to the report, India has increasingly become an important player as a bilateral creditor, with special focus on its immediate neighborhood.
• In comparison, China, which continues to dominate as one of the largest bilateral creditors, has a diverse lending strategy with a focus on the African continent. 
• Aiming to become the leader of the Global South, India in recent years has also started to follow a diversification strategy and expand its presence in Africa with development finance assistance to countries like Malawi, Mozambique, Ghana, and others.
• Escalating debt vulnerabilities in many low or middle-income countries (LMICs) and overlapping crises—such as the Covid-19 pandemic, the war in Ukraine, devastating climate events, and the daunting global macroeconomic environment—are forcing an increasing number of countries to seek debt restructuring from external creditors.
• This has brought both China and India to the negotiating table, often with contrasting views on debt restructuring, as seen in the cases of Zambia and Sri Lanka.

Unsustainable Debt in Developing Countries:

• The International Debt Report 2023 highlights a concerning trend of rising fears about unsustainable debt in developing countries.
• One in four developing nations is effectively excluded from international capital markets, with 18 sovereign debt defaults in the past three years, surpassing the total of the previous two decades.
• The poorest nations face a nearly paralyzing burden, with 28 countries eligible for World Bank support at high risk of debt distress, threatening progress on global development goals.
• Increasing debt servicing costs divert crucial spending away from health and education, posing a grave danger to the prospects of these nations. 

Way forward:

• The divergent external lending strategies of India and China, especially in the context of unsustainable debt facing developing nations, highlight the need for a nuanced and proactive approach.
• Enhancing debt transparency, engaging with stakeholders, and strengthening reporting systems are critical.
• Multilateral support and timely, comprehensive data are vital for fostering sustainable development and averting economic crises.