flickr
New Delhi: Recently, Laos revealed that its foreign debt has skyrocketed, doubling in size, and now the country needs more time to avoid default. After this disclosure, China stated that it is helping its neighbor reduce its enormous debt load. A spokesman for China’s Ministry of Foreign Affairs told the Eurasian Times that Beijing is engaged in "mutually beneficial cooperation" with developing nations like Laos. This cooperation includes support for social and economic development. The spokesperson added, "At the same time, it has been doing its best to help relevant countries alleviate their debt burden."
China's statement appears to address a situation it may have contributed to. Over half of Laos’s $10.5 billion in external government debt is owed to China, making it Laos's largest creditor. The tiny country’s total public debt at the end of the previous year was $13.8 billion, which is 108% of its GDP.
Laos deferred $670 million in principal and interest payments on its $950 million in external debt obligations last year.
Most of Laos’ state debt is linked to infrastructure deals made under China’s Belt and Road Initiative (BRI). Problems continue to escalate for Laos as its foreign reserves have decreased due to borrowing billions from China to fund projects like roadways, trains, and hydroelectric dams under the BRI.
Laos gained attention after it built and inaugurated a high-speed train route with China, costing almost $6 billion. While many view this project as the start of a major infrastructure push that connects Southeast Asia with the world’s second-largest economy, it has also led to a debt crisis.
In addition to a currency crisis, rising global food and fuel costs have caused the Laotian kip to hit record-low values against the US dollar, which triggered skyrocketing inflation. There is widespread anxiety within the country that if the current economic crisis spirals out of control, Laos could face economic collapse.
The Laotian government has implemented several measures to stabilize the situation, including raising interest rates, issuing bonds, and developing debt management strategies in collaboration with the Asian Development Bank. However, these actions have also led to reduced spending on essential services like healthcare and education. It might harm the population in the long run.
China, one of the biggest lenders in the world, often offers credit more readily than other countries. However, it is also seen as one of the harshest lenders. Its loans often come with stringent terms, which puts several developing nations at risk of economic instability or collapse.
There have been allegations that China uses unethical tactics to ensure repayment. According to reports, borrowers are sometimes forced to deposit money into secret escrow accounts, They prioritize China’s payments over other creditors. However, the Top Indian News could not verify these claims.
Copyright © 2025 Top Indian News
