Multilateral development banks (MDBs) reluctant to offer debt relief need to shoulder an “equitable burden” in sovereign debt restructuring, a People’s Bank of China official said on Monday (Mar 27).

China has lent hundreds of billions of dollars to developing countries – mainly for infrastructure projects – over the last two decades. But with countries such as Zambia, Sri Lanka and Ghana having defaulted, China has faced criticism for holding up the debt restructuring processes.

Jin Zhongxia, the director general of the central bank’s international department, said in an online conference that institutions such as the World Bank and International Monetary Fund cite their credit ratings as a reason for not restructuring debt.

However, Chinese lenders such as the Export-Import Bank of China and China Development Bank – Beijing’s two main trade policy banks – share this concern and argue this should be “equitable for them”, Jin added.

“MDBs have been reluctant to restructure their outstanding debt and one argument (they make) is we are not yet in a time of systemic debt distress,” Jin said at a Chinese development finance conference hosted by the Finance for Development Lab think-tank.

Jin questioned why, if that was the case, “systemic mechanisms” were needed, including the Debt Service Suspension Initiative at the start of the Covid-19 pandemic and the G20 Common Framework process, which Zambia, Ghana and Ethiopia are using.

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The World Bank, the United States and other wealthy countries, and developing countries that lend at concessional rates, have opposed China’s request for MDBs to take haircuts.

“With the absence of MDBs’ participation in debt restructuring, bilateral official creditors are effectively asked to restructure part of the debt that is not owed to them,” Jin said, adding this had increased the “hesitancy” of Chinese creditors.

Jin also said that removing investments in “productive assets” from debt stock calculations in debt restructuring situations “should be encouraged”.

He acknowledged diverging opinions within China about debt restructuring, which he attributed partly to a lack of experience.

“At most 15 years ago, in the multilateral forums China was always on the side of the borrowing countries,” Jin said. “This is a big transformational shift, so the mindset and mentality need to be adjusted.” REUTERS