WASHINGTON: Laos, deeply indebted to China for large-scale infrastructure projects, is at high risk of defaulting on its obligations, according to experts, a situation exacerbated by the economic stress felt worldwide due to the coronavirus and the war in Ukraine.
The international rating agency Moody’s downgraded Laos’ credit rating to Caa3 on June 14, citing “a very high debt burden and insufficient coverage of external debt maturities by (foreign exchange) reserves.” The agency warned that Laos’ default risk will remain high.
According to a World Bank report published in April, preliminary estimates indicated that Laos’ total public and publicly guaranteed debt reached 88% of gross domestic product in 2021. The debt is valued at $14.5 billion, about half of which is owed to China on loans to fund projects including the China-Laos railway.
Greg Raymond, a Southeast Asia expert and lecturer at the Australian National University, told VOA Mandarin that the crisis facing Vientiane has layered origins.
“The near-term reasons are the rise in oil prices due to war in Ukraine, and U.S. interest rate rises causing a fall in the value of the Lao currency,” he said.
“But deeper-level reasons would include the country’s decisions to go deeply into debt to fund large-scale infrastructure projects,” Raymond added. China continued to be the largest foreign investor in Laos last year, undertaking 813 projects worth more than $16 billion, according to Chinese state media Xinhua, citing Lao officials.
VOA Mandarin contacted the Chinese Embassy in Washington for comment on the loans to Laos and was referred to the Foreign Ministry in Beijing and the Lao Embassy. Inquiries placed at both offices were not answered.
The so-called “debt trap” incurred by accepting infrastructure financing from Beijing has also impacted Sri Lanka and other countries.