A Framework to Assess Debt Sustainability under the Belt and Road Initiative

Abstract

This paper proposes a framework to assess the impact of infrastructure investment expected under the Belt and Road Initiative (BRI) on the debt vulnerabilities of countries located on BRI transport and connectivity corridors. In the absence of comprehensive data on investments and financing terms, key assumptions have been made to estimate: i) the amounts and terms of public and publicly guaranteed (PPG) debt financing for BRI investment, ii) size and sectoral type of identified BRI investment, and iii) expected growth impact. BRI debt financing is expected to significantly increase PPG debt in several countries. The paper assesses the debt vulnerability from BRI investment in the medium term. In the medium term, defined as the period 2019–2023, debt financing of BRI investment is expected to be fully disbursed while the full growth impact of BRI related infrastructure is not entirely realized. In this initial phase, more than 50 percent of assessed BRI-recipient countries are estimated to face elevated debt vulnerabilities post-BRI, if BRI has only a limited impact on overall growth. Most of these countries have already high debt vulnerabilities before BRI investment.