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Credit crunch: Chinese infrastructure lending and Lao sovereign debt

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  • Keith Barney
  • Kanya Souksakoun

Abstract

Lao PDR's push for large infrastructure‐led economic growth has been delivered through a significant amount of financial leverage and a build‐up of sovereign debt obligations. The government now finds itself in danger of a sovereign default. This article traces the roots of this debt crisis over the past decade, focusing particularly on the role of hydropower. A significant share of infrastructure lending to Laos has been through Chinese policy banks. We argue that over‐lending to dam projects focused on the domestic energy market has been at the core of Laos' debt situation. Through 2020 the Lao Government has undertaken a series of restructuring measures, including privatisation of state assets, engaging in debt renegotiations with China, and attempts to secure new short‐term credit. We outline a range of other options Laos has to reschedule or restructure their sovereign debt, and offer policy targeted recommendations focusing on reforms in the energy sector.

Suggested Citation

  • Keith Barney & Kanya Souksakoun, 2021. "Credit crunch: Chinese infrastructure lending and Lao sovereign debt," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 8(1), pages 94-113, January.
    • Handle: RePEc:bla:asiaps:v:8:y:2021:i:1:p:94-113
    DOI: 10.1002/app5.318
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    References listed on IDEAS

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    1. World Bank & International Monetary Fund, 2019. "Benin - Joint World Bank-IMF Debt Sustainability Analysis," World Bank Publications - Reports 32568, The World Bank Group.
    2. World Bank & International Monetary Fund, 2019. "The Democratic Republic of the Congo - Joint World Bank-IMF Debt Sustainability Analysis," World Bank Publications - Reports 32577, The World Bank Group.
    3. World Bank & International Monetary Fund, 2019. "Honduras - Joint World Bank-IMF Debt Sustainability Analysis," World Bank Publications - Reports 32558, The World Bank Group.
    4. World Bank & International Monetary Fund, 2019. "The Federated States of Micronesia - Joint World Bank-IMF Debt Sustainability Analysis," World Bank Publications - Reports 32573, The World Bank Group.
    5. World Bank & International Monetary Fund, 2019. "Grenada - Joint World Bank-IMF Debt Sustainability Analysis," World Bank Publications - Reports 32567, The World Bank Group.
    6. World Bank & International Monetary Fund, 2019. "Kyrgyz Republic - Joint World Bank-IMF Debt Sustainability Analysis," World Bank Publications - Reports 32566, The World Bank Group.
    7. World Bank, 2020. "Lao PDR Economic Monitor, June 2020," World Bank Publications - Reports 34048, The World Bank Group.
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    Cited by:

    1. Khalil Ullah Mohammad & Mohsin Raza Khan, 2022. "Effectiveness Of Green Project Screening For Bank Lending: Evidence From Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(1), pages 93-103, March.
    2. Dwyer, Michael B. & Nanhthavong, Vong, 2023. "Making concessions pay? Historical vs. potential tax revenues from Laos’s rubber sector," World Development, Elsevier, vol. 172(C).
    3. Christoph Nedopil & Mathias Lund Larsen & Mengdi Yue & Yao Wang, 2022. "Prospects of the Multilateral Cooperation Center for Development Finance (MCDF) to catalyse infrastructure financing," Asia and the Pacific Policy Studies, Wiley Blackwell, vol. 9(1), pages 81-110, January.

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    1. Dwyer, Michael B. & Nanhthavong, Vong, 2023. "Making concessions pay? Historical vs. potential tax revenues from Laos’s rubber sector," World Development, Elsevier, vol. 172(C).

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