In a startling announcement, Myanmar’s auditor general has cautioned government officials about continued reliance on Chinese loans both pre-BRI and BRI loans that come with high rates of interest.
“The truth is the loans from China come at higher interest rates compared to loans from financial institutions like the World Bank or the IMF [International Monetary Fund],” Auditor General Maw Than said. “So, I would like to remind the government ministries to be more restrained in using Chinese loans.”
Myanmar’s current national debt stands at about $10 billion, of which $ 4 billion is owed to China, Auditor General Maw Than told reporters in Naypyidaw on Monday. This can push Myanmar to debt trap like Sri Lanka and some African states.
The country has to repay as much as $500 million annually to China in both principal and interest. Analysts have pointed out that Myanmar’s involvement in China’s Belt and Road Initiative (BRI) meant that it continued to take new debts to finance its huge infrastructure projects.
Myanmar’s MPs and analysts on Tuesday said that China’s loans have become burdensome because the country has had to repay as much as U.S. $500 annually in both principal and interest.
In January, Chinese President Xi Jinping and Myanmar leader Aung San Suu Kyi agreed to speed up key infrastructure under the BRI, resulting in 33 exchange letters, protocols and memorandums of understanding on mega-project development, railways, industrial and power projects, and trade and investment.
“Chinese loans often have higher interest rates than those from other international lenders so scrutiny of the costs of BRI projects, their financial viability, and their sources of financing will be particularly critical to ensure that the Myanmar government avoids a disproportionately high debt burden,” said a November 2019 report by the Transnational Institute on BRI projects in Myanmar.
The spokesman of Myanmar’s Ministry of Transport and Communications has said that a Swiss company has been signed as a third party to scrutinize the Muse-Mandalay Electric Railway built by China Railway Eryuan Engineering Group (CREEG).
It can be recalled that both Myanmar and China had signed the MoU to implement the US$8.9 billion Muse-Mandalay Railway project in 2011.
However, the project got postponed because of objection from the locals. In 2018, CREEG and Myanmar Railway signed yet another MOU to begin the feasibility study under the supervision of a third party to assess the environmental impact.
Local economists suggest that the government should negotiate with China for writing off the loan because of the coronavirus pandemic.
Myanmar signed a MoU to establish the CMEC or China Myanmar Economic Corridor in 2018. The 1,700-kilometer corridor will connect Kunming, the capital of China’s Yunnan province, to Myanmar’s major economic hubs—first to Mandalay in central Myanmar, and then east to Yangon and west to the Kyaukphyu SEZ in western Rakhine State.
A framework agreement on the ambitious Kyaukphyu SEZ was inked in November 2018, with Myanmar holding 30 percent of the shares in the project. The project is expected to boost development in landlocked Yunnan and provide China with direct access to the Indian Ocean, allowing its oil imports to bypass the Strait of Malacca.
New Yangon City is a controversial project launched by the Yangon regional government via the government-owned New Yangon Development Company (NYDC) in 2018 and aims to build a new city across the Yangon River from the existing city.
The NYDC signed a framework agreement with China Communications Construction Co. Ltd (CCCC) for Stage 1 Infrastructure Projects including two bridges, roads, power plants, water and wastewater treatment plants and a 10-square-kilometer industrial estate.
Since NYDC announced plans to implement the project, the slated new city has been a source of controversy. Town planners raised the alarm over the flood-prone location of the project, and the Yangon Regional government was accused of abusing its power by investing 10 billion kyats (US$7.2 million) in the project without prior approval from the regional parliament.
Furthermore, agreements to establish cross-border economic cooperation zones along the borders in Shan and Kachin states were among the very first agreement between the National League for Democracy (NLD)-led government and China in 2017.