# Introduction

The Belt and Road Initiative (BRI), announced by President Xi Jinping of China in 2013, is a China-led effort to improve connectivity and regional cooperation on a trans-continental scale through large-scale investments. By some estimates, the initiative seeks to deliver up to US$1 trillion in infrastructure investment mainly to Asia, Europe, and Africa.<sup>2</sup> The BRI has the potential to significantly accelerate the rate of economic integration and development of a large number of countries. But, like any large undertaking, there are significant policy and economic challenges. One important question is how the BRI affects debt sustainability in beneficiary countries.

The implementation of the BRI takes place in the context of rapidly rising public and corporate debt levels. Public debt in Emerging Markets (EMs) has been rising, reaching levels not seen since the 1980s. It has been accompanied by changes in public debt composition and by rising corporate debt in Ems, which now significantly exceeds historical levels and adds to fiscal risks and vulnerabilities. Similarly, debt risks in low-income developing countries (LIDCs) have risen substantially over recent years and the share of countries at high risk of debt distress or in debt distress has doubled since 2013 to about 40 percent (IMF and World Bank, 2018). In this context, large debt financing, especially in foreign currency and on non-concessional terms, may lead to a rapid deterioration of already heightened debt vulnerabilities over the medium term.

The analysis in the paper only covers estimated BRI investments financed through public and publicly guaranteed (PPG) debt and not total debt financing from China. Our database identifies BRI investment worth US$575 billion, including projects already executed, in implementation phase and planned. Based on this data, US$525 billion or 91 percent of total identified investments is expected to benefit IBRD or IDA-eligible countries.<sup>3</sup> Only US$66 billion in completed projects has been identified as of end-2016; most BRI investment is still in the construction or planning phase. The analysis largely focuses on 50 developing countries, which have been identified as lying on the original BRI transport and connectivity corridors (De Soyres et al., 2018) and for which debt and macroeconomic data are available. This approach implies that, for example, only two Sub-Saharan African countries, namely Kenya and Tanzania, are included in the database, despite significant Chinese investment in Sub-Saharan Africa, some of which has been recently rebranded as BRI related.<sup>4</sup> Several countries have already scaled back on BRI investments or requested debt relief from China. In October 2018, Malaysia decided to suspend and renegotiate US$20 billion worth of projects fearing not to be able to repay such debt and Pakistan cut down the cost of a large railway project. China had to provide debt relief to several borrowing countries in recent years<sup>5</sup> ; in some rare cases, difficulties in repaying debt has resulted in China taking possession of key infrastructure in lieu of repayment in Sri

> 2 See, for example, “How Big Is China’s Belt and Road?”, April 3, 2018, Center of Strategic and International Studies. 3 US$ 10 billion of financing directed to Latin American Countries was not considered in the analysis.

> 4 In October 2018, the Forum on China-Africa Cooperation announced US$60 billion financing to African Countries and this financing has been re-branded as part of the BRI (see https://thediplomat.com/2018/09/focac-2018rebranding-china-in-africa/).

> 5 Hurley _et al._ (2018) provide a comprehensive list.

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