Britain’s international development secretary, Penny Mordaunt, has sounded the alarm over rising debt levels in the poorest countries amid fears heavy repayments will jeopardise the fight against global poverty.
Mordaunt, speaking at the spring meeting of the World Bank in Washington DC, urged China and private lenders to be fully transparent about their lending to developing countries.
“The UK is very concerned by rising debt levels, particularly in emerging market economies and in low-income countries,” Mordaunt said. “Unsustainable debt levels are a real risk that can undermine or reverse development gains.”
The World Bank and the International Monetary Fund have raised concerns about the rising number of poor countries that are either in debt distress or at high risk of being so. The IMF said 40% of low-income countries – 28 out of 60 – are in one or other of those categories.
Mordaunt said: “Ultimately, we think it is the borrowers’ responsibility for their own debt sustainability but we also agree and have been pushing that creditors including new ones, such as China, need to ensure their lending meets internationally agreed standards on transparency and sustainability. We have also prompted the private sector to improve its transparency.”
China, after criticism that its opaque lending practices encouraged corruption and risked trapping poor countries in debt they could not pay back, has been taking steps to improve its reputation.
Last month, Beijing signed a memorandum of understanding with eight multilateral banks, including the World Bank, to set up the Multilateral Cooperation Centre for Development Finance. The creation of the centre is designed to change how China operates in developing countries and bring tangible benefits to them.
The UK is the only individual country invited by China to participate in the initiative, which Mordaunt said was an indication of the UK’s reputation for providing development finance.
The UK believes it makes sense to engage with China on its ambitious Belt and Road Initiative, comprised of several infrastructure projects across Asia, the Middle East, Europe and Africa, and that there will be commercial benefits for British firms providing a range of professional services, such as project management.
Mordaunt said: “We are trying to build a positive, constructive relationship with China on international development. One of the draws for China is the UK’s technical expertise in this field. They value that. We recognise there are opportunities for China to deliver more tangible benefits in the developing countries they are investing in.
“China’s proposal to set up a Multilateral Cooperation Centre for Development Finance has real potential to ensure its huge investments in developing countries meet the key international standards that matter to all of us – on debt, transparency, environment and social safeguards.”
The UK has also urged the World Bank and the IMF to step up efforts to help poor countries manage their debts, including through technical assistance and surveillance. Mordaunt said she was providing £4m to the World Bank debt management trust fund.