The backstory: The US hit its debt limit last Thursday. This means Congress has to decide to either raise or suspend the debt ceiling. Meanwhile, the US Treasury has to navigate making payments and keep itself running. Everyone is expecting a lot of feuding between Democrats and Republicans on whether to increase the cap or not, so this issue probably won’t be resolved super quickly. Dems tend to always want to raise the ceiling, and Republicans usually want to use it to negotiate budget cuts.
Meanwhile, China also has a major debt issue, as its current debt is more than three times the country’s GDP. China is also the world’s top creditor, and it’s loaned a lot of money to developing nations as it looked to expand its global influence. For example, it’s loaned a chunk of cash to Zambia and owns more than a third of that country’s external debt.
More recently: US Treasury Secretary Janet Yellen is on a tour of Africa as the US tries to expand its influence there. On Monday, she spoke in Zambia about the country’s debt issues with China. In 2020, Zambia defaulted on a US$42.5 million bond payment, and negotiations on how to deal with that are ongoing. But a debt crisis could make it impossible for Zambia to recover economically from the pandemic. China has been criticized before for seemingly not playing ball to help reduce debt burdens for developing nations. Now, Yellen has said that this issue is taking too long to settle. Although she underscored that her visit wasn’t about competing with China, she said that when it comes to the US investing in Zambia (which has developed closer ties with the US in recent years), it doesn’t want to “create the same problems that Chinese investment” in the country has.
The development: Later on Monday, China’s embassy in Zambia responded by criticizing Yellen for butting in on this debt situation while the US has so much debt chaos at home.China basically suggested the US worry about its own problems before commenting on other countries’ debts. The embassy explained that there’s ongoing work between China and Zambia to figure out their financial position. Even though Chinese and American relations have been warming lately, this incident kind of cools that recent sentiment.
Although experts have said Zambia shouldn’t take on more debt, Yusuf Dodia, an economist and director of Action Group Zambia, told The Associated Press that “there are infrastructure projects that we need done to change the trajectory of the Zambian economy. He added: “If we had a widespread railway system, that would ensure that the cost of transport in Zambia would be brought down to 15% of the current cost – right now we’re dependent on busing and trucking – that would lower the cost of doing business.”
“We want to deepen our engagement,” US Secretary Janet Yellen said during her visit to Lusaka, Zambia. “We see a rapidly growing young population that needs opportunities and economic growth. We have many government programs and international programs that are oriented to help efforts to build infrastructure. And when we do that, we want to make sure that we don’t create the same problems that Chinese investment has sometimes created here.”
“The biggest contribution that the US can make to the debt issues outside the country is to act on responsible monetary policies, cope with its own debt problem, and stop sabotaging other sovereign countries’ active efforts to solve their debt issues,” the Chinese embassy was quoted as saying.
“Assuming Secretary Yellen’s statements about debt were correct, the best prospect of the debt issues outside the US would be the US Treasury Department solving the US’ own domestic debt problem, given how well she knows about facts, her professional capacities and her team’s implementation ability,” the Chinese embassy also said.