China has loaned Pacific Island nations money for infrastructure — the debts have become 'astronomical'
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Pacific Island nations are spending big to repay loans from China. But some say there are other roads available to them if they want to overcome their debt burdens.

Over the past 20 years, China has become the largest lender in the Pacific. Now Tonga, Vanuatu and Samoa are spending some of the biggest sums in the world to repay debts to China, as a proportion of their GDP, according to Lowy Institute analysis.

Pacific countries have some of the highest costs in the world in terms of climate adaptation needs, but these are things that have to be deprioritised to deal with the debt. “It’s a trade-off and it’s not one that’s good,” Tonga’s finance minister says.

Experts say China’s EXIM Bank does not forgive foreign debts. “It will ease borrowing terms by extending repayment moratoria or pushing out final loan repayment dates. However, it rarely reduces interest rates,” Bradley Parks, executive director of AidData, said.

  • Tonga’s annual debt repayments to China are nearly 4 per cent of its GDP — the third-highest level in the world. It’s a rate that Lowy research associate Riley Duke calls “astronomically high”.

  • AidData analysis has found 85 per cent of China’s loan-financed infrastructure projects in Tonga show signs of debt distress.

  • Fiji, Papua New Guinea and Cook Islands also have moderate levels of public debt exposure to China, according to the AidData research lab at William & Mary, a Virginia-based public university in the United States.

  • Vanuatu has struggled less with its debts to China and has met its loan repayments, but a series of economic shocks have set the nation back, including three tropical cyclones in 2023 and the collapse of its national carrier in May.

  • Loan repayments to China commonly drain resources from public services such as health and education, and other pressing needs in the region. In Tonga’s case, the government was spending more on servicing its debt than on health.

  • Ben MatthewsEnglish
    5·
    2 months ago

    China by now has made a large contribution to CO2 in the atmosphere - which leads to sea-level-rise, ocean acidification etc., imposing adaptation costs on these islands. These cause-effect links can be calculated quite accurately, so a case could be made to swap financial debt for climate debt (within, of course, a context of global deals where all big emitters contribute reasonable shares). In these specific cases it would be peanuts for China’s budget, it’s more the diplomatic precedent they’d oppose.