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Nepal
OpinionComment
Kamala Thiagarajan
Kamala Thiagarajan

Opinion | Nepal’s economic woes, following Sri Lanka’s crisis, turn up the heat on China’s belt and road loans

  • Critics warn that Nepal risks being another indebted country facing economic ruin if it accepts loans from China, in the wake of the Sri Lanka’s debt troubles
  • In Nepal, the Chinese infrastructure initiative is increasingly seen in the context of US-China rivalry

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Nepalese police baton-charge a protester opposing a US aid agency’s US$500 million grant for Nepal outside the parliament in Kathmandu on February 27. The US grant, meant to improve roads and other infrastructure in Nepal, is opposed by the Communist parties, two of which are in the governing coalition government. Photo: AP
Kamala Thiagarajan
After Pakistan and Sri Lanka, Nepal is adding to the political turmoil in Asia. The country has been forced to restrict its imports of luxury items including gold, cars and cosmetics after foreign exchange reserves fell by more than 16 per cent over the seven months to the middle of February.
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Adding to the troubles are the disagreements between Nepal’s finance minister and its central bank governor, which came to a head on April 8. Maha Prasad Adhikari, governor of Nepal Rastra Bank, the central bank, was suspended by the government on the charges of leaking sensitive information and failing to effectively fulfil his responsibilities. However, former finance ministers have come together to condemn the move, which they say is a smokescreen to hide the government’s inability to perform.

While some economists play down Nepal’s dwindling foreign exchange as a short-term problem, there are concerns that the issue may be conflated with a growing debt burden if it accepts Chinese loans for infrastructure projects. After all, Sri Lanka’s foreign exchange reserves have shrunk rapidly in a similar situation as it faces its worst economic crisis in decades.

02:32

Sri Lanka facing humanitarian disaster amid civil unrest as economic crisis deepens

Sri Lanka facing humanitarian disaster amid civil unrest as economic crisis deepens

Coming under increasing scrutiny is a policy that many believe to be the epicentre of these woes. China’s flagship Belt and Road Initiative, announced in 2013, has led to greater Chinese investment in Asia. It was meant to help build infrastructure to allow developing countries to grow quickly and establish themselves as middle-income economies. It also marked China’s growing influence in the region.

In 2017, Nepal and China signed a memorandum of understanding to cooperate over the Belt and Road Initiative. Other big contracts were also signed in countries such as Sri Lanka, Cambodia, Pakistan and Malaysia.

Over the years, debate about the effectiveness of the Belt and Road Initiative has been rife. Supporters say it is a means of boosting the global economy by US$7 trillion by 2040. However, it has also come under a great deal of criticism, especially as it is seen to have triggered the so-called “debt trap diplomacy”.
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The term “debt-trap diplomacy” was coined during Donald Trump’s presidency, and it marks the West’s growing unease with China’s widening sphere of influence in this region. Detractors who are deeply suspicious of China’s intentions argue that debt-trap diplomacy has the potential to put borrowing nations in a tailspin.

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