Cost of funding ‘Belt and Road Initiative’ is daunting task
Funding is proving to be quite a task as estimates for the capital needs of projects range from US$4 trillion to US$8 trillion
As China pushes development projects around the region through its “Belt and Road Initiative”, increased exposure to countries with poor credit profiles could put the nation at risk of being bogged down by the costs involved.
Credit rating agency Moody’s warned in a report that the initiative should prove to be a positive for China but may pose a credit risk.
“Our ‘report card’ on BRI indicates that overall it generates more positive than negative effects both for China and the recipient countries,” says Michael Taylor, Moody’s managing director and chief credit officer, Asia-Pacific.
The challenges emerge in the implementation of the initiative and could create more exposure to countries with poor credit profiles and limited financial strength.
More than one-third – 37 per cent – of BRI investments from China have gone into countries with ratings of Ba1 or lower. Take out Singapore and that jumps to more than half – 54 per cent.
Financial institutions, particularly regional banks with operations throughout belt and road countries, are aware of the opportunities and risks inherent in investing in those countries.
