Tang Xiaoyang led the report on “The Impact of International Bonds on the Debt Sustainability of Developing Countries”


A recent Tsinghua report shows that as African countries are expected to experience a peak of international bond repayment between 2023 and 2025, they may be at risk of default—a potential crisis that is likely to hit dozens of low- and middle-income bond-issuing countries.

How serious is the debt crisis in developing economies? What is a debt trap? On August 3, 2022, the launch event of the report titled “The Trap of Financial Capital: The Impact of International Bonds on the Debt Sustainability of Developing Countries,” co-organized by Tsinghua University’s Department of International Relations and China Forum under the Center for International Security and Strategy, was held in Beijing. This is the first time that a Chinese research team has proposed countermeasures on this issue at the international level.


The report’s lead author, Professor Tang Xiaoyang, chair in the Department of International Relations at Tsinghua University and a China Forum expert, presented the report at the event. He pointed out that as Africa faces over $100 billion worth of bonds maturing between 2023 and 2025, a debt and liquidity crisis is looming over the continent, which calls for developing countries to better manage the relationship between market and demand.

In his remarks, Mr. Siddharth Chatterjee, UN resident coordinator in China, analyzed the challenges posed by the COVID-19 pandemic to global socio-economic development, which, coupled with the debt and liquidity crisis, have hindered progress towards the Sustainable Development Goals. The UN can play a bigger role in fostering innovative synergies, he said.

Ambassador Rahamtalla Mohamed Osman Elnor, African Union representative to China, stressed that the multitude of problems faced by developing countries in terms of debt servicing and bond issuance needs greater attention from the academic and policy communities. He also dismissed the so-called “Chinese debt trap in Africa” as a factually ungrounded argument.

Mr. Ying Haifeng, president of Dagong Global Credit Rating Agency, touched upon the pressing need to build a sound rating system for developing countries. Chinese wisdom could be used to provide a fresh analytical perspective and solution for ratings for developing countries, he said.

The event brought together over 40 media outlets from China and from African, Latin American and other Asian countries, as well as diplomatic envoys in China.


Titled “The Trap of Financial Capital: The Impact of International Bonds on the Debt Sustainability of Developing Countries,” the special report was launched by Professor Tang Xiaoyang’s team after a six-month research. It notes that African countries are expected to experience their first peak of international bond repayment in 2023-2025, with over $100 billion worth of debt maturing. Debtor countries that are unable to successfully refinance their debt could slip into a downward spiral of defaults, credit rating downgrades, shortages in foreign exchange reserves and currency devaluation, which would push them further into recession. Amid the dire global economic situation, the problem of bond default is highly likely to spread from single cases to a wide area and finally become a major challenge in the wider economic systems, currencies and even politics of dozens of low- and middle-income bond-issuing countries.

The report points out that developing countries have been facing rising debt pressure since 2020—a significant threat to global economic recovery. Sri Lanka, Zambia, Argentina and other countries have defaulted their bond repayments since 2020 and experienced a series of socio-economic turbulences. Developing countries such as Ghana, Suriname, Angola, Ethiopia, and El Salvador could soon meet similar challenges for debt service.


The main driving force of this debt crisis is the surging stock of international bonds. Over the 12 years since 2008, the stock of international bonds (mainly Eurobonds) of all low- and middle-income countries has increased by nearly 400% to $,1737.2 billion in 2020, accounting for over 50% of these countries’ government-guaranteed external debt. Low- and middle-income countries paid 63.2% of their total interest payments on international bonds in 2020, while traditional bilateral and multilateral debts were much lower. Considering the generally high interest rates on international bonds, the financial cost of international bond debt service has become a major factor for the debt stress of countries that issue bonds. The surge of international sovereign bonds in Africa is particularly alarming: it has increased five times in ten years, with more than 20 countries across the continent holding outstanding international sovereign bonds (commonly known as Eurobonds). At the same time, the rise in both the exchange rates and interest rates of the US dollar—the currency in which international bonds are usually denominated—has significantly increased the sizes of foreign debt of bond-issuing countries.

The report notes that the surge in bond issues by African countries and the ensuing crisis stemmed from the need of international financial capital (mainly well-known institutional investors in Europe and the United States) to pursue high returns from the rapid growth in emerging markets during the economic downturn in the developed world. Therefore, it has been encouraging developing countries to issue more Eurobonds by offering convenient and facilitative measures. Having thus been lured into the trap of high debt risk, emerging economies with vulnerable economic structures and little experience in financial risk management soon found themselves mired in the multiplicity of global economic downturn. Many of them have fallen into a vicious cycle over the mid- to long-term, in which they will be forced to issue new bonds with higher interest rates to repay old debts under the seemingly fair market rules. The shackle of international financial capital could lead to an overdraft on these countries’ growth prospects.

The impact of international bonds on sovereign debt has been widely neglected by Western media and research institutions, the report warns. Through a systematic analysis of the negative implications of Eurobonds, the report finds that certain market behaviors based on developed countries’ financial systems just do not work for small, inexperienced developing economies. The bond issuance and liquidity rules formulated by financial institutions in developed countries tend to give priority to the interests of financial institutions and the needs of the developed country markets. They fail to fully account for the characteristics of developing countries such as single revenue sources, strong cyclicality, weak risk management, and need for long-term infrastructure construction. The issuance of Eurobonds, a procyclical commercial behavior, has exacerbated the economic fluctuations of developing countries. For emerging economies, the sudden reduction of public expenditure caused by the debt repayment peak and the difficulties in refinancing might bring an abrupt end to their economic restructuring efforts of the past decade or even more. It will take a long time for them to recover the pre-crisis results after the liquidity crisis. Such a huge impact of cyclical repayment has already caused several developing countries to fall into the vicious cycle of unsustainable economic growth in modern history.

The report takes stock of the lessons learned from the issuance of Eurobonds by developing countries and calls on the international community to work together to avoid any further expansion of sovereign bond defaults by taking timely precautions and fostering an international financial system that accounts for the characteristics of emerging markets.

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