(Paris) Faced with their mounting debt, developing countries are increasingly resorting to business loans granted by international bodies, says the vice-president of the International Finance Corporation (IFC), the World Bank’s private sector arm.
“Investing in the private sector is becoming increasingly important because governments, particularly in Africa, are so indebted that they can sometimes no longer resort to public borrowing,” Susan Lund said in an interview with AFP, as around fifty African leaders gathered for a forum in Beijing, the continent’s leading trading partner.
Established in 1956, IFC provides loans to companies and financial institutions with projects in developing countries where they have a development vocation.
The Washington-based institution pledged to make a record $56 billion in loans in its latest fiscal year, which ended in June, $13 billion more than a year earlier.
“Governments know exactly when they can no longer afford to borrow,” Lund continues, noting that “in some countries our activity is several times greater than that of the World Bank.”
The IFC, which operates in more than 100 countries, has had an increased presence in recent years in countries such as Brazil, Argentina, Ethiopia and Egypt.
“States are realizing that they need to move private sector money because the state structure can no longer do it,” she says.
The situation has become all the more pressing as IFC lending has increased as foreign direct investment (FDI) fell by 7 percent to developing countries last year, a recent UNCTAD report showed.
The growth in IFC lending to developing countries, many of them in sub-Saharan Africa, came at a time when China has been making large amounts of loans under the Belt and Road Initiative, but these have declined sharply since peaking in 2016.
These loans from Chinese public banks have made it possible to finance numerous infrastructures intended to boost African growth (railways, ports, roads, etc.). But they have raised questions by contributing to increasing the indebtedness of certain countries.
At the largest diplomatic meeting in Beijing since the COVID-19 pandemic, Chinese President Xi Jinping on Thursday pledged more than $50 billion in funding over three years to African countries.