Australia warned not to overload the Pacific with debt
A leading think tank has warned that Australia has to be careful, not to overload Pacific Island Nations with debt. This year's edition of the Lowy Institute's Pacific Aid map, finds Australia is still the top donor in the Pacific by a large margin, but the way it distributes development assistance is changing.
Category
📺
TVTranscript
00:00 The main finding is that Australia is still by far the largest donor of foreign aid throughout
00:06 the whole Pacific. So one of the things that the Lowy Institute has done this time around
00:10 is crunch all of the data from 2008 up until 2021. And over that period, Australia's provided
00:17 around 40% of all of the total foreign aid supplied. So when it comes to the largest
00:24 providers, particularly if you exclude some of the multilateral institutions like the
00:28 Asian Development Bank, it really is Australia first, Daylight second, and then a host of
00:33 other players such as New Zealand, China, Japan and the United States. But one of the
00:39 interesting things in this year's map is that the researchers at Lowy Institute have tracked
00:44 a change in the way Australia distributes aid. Now traditionally, almost all of Australia's
00:50 aid has been in the form of grants that's handed over, particularly to support things
00:54 like governance, health and education in these countries. Around the time of 2019, though,
01:01 around the time of COVID, that started to shift perhaps a little bit earlier as Australia
01:05 increasingly started to get into the infrastructure game. And what we've seen in the most recent
01:09 iteration is Australia has now emerged as the major lender in the region. Now most of
01:15 its money is still in the form of grants, but it's now the leading lender as well as
01:19 the leading donor. And that creates risks as well as opportunities. On the one hand,
01:25 Pacific nations are asking for these loans to help them balance their budgets, to build
01:29 infrastructure, all of that sort of thing. But there are risks because a number of Pacific
01:34 countries, particularly in the wake of COVID and travel bans, are struggling with bad balance
01:40 sheets, they're struggling with high levels of debt. And Alexander Dayant from the Lowy
01:44 Institute, one of the main authors of this map, says Australia has to be careful that
01:48 when it goes into the lending game, that it treads carefully, that it doesn't overload
01:53 countries already struggling with debt. Let's take a listen to what he had to say.
01:58 And what's interesting to see that a lot of this financing is coming under the form of
02:04 what you call concessional loans. So loans that are very cheap, below market rate in
02:08 nature, but that are still loans. And this comes at a time where the overall debt in
02:16 the Pacific is actually increasing. So one of the points that we mentioned in our report
02:22 is to say that, you know, despite the fact that the Pacific needs financing, Australia
02:28 will need to trade very carefully when providing those development loans to the Pacific. Because
02:32 yes, most countries in the Pacific now face a high risk of debt distress, according to
02:37 the International Monetary Fund. And so it is very important for Australia, as for any
02:42 other development partners that provide loans to the region to trade very carefully.
02:46 Stephen, what's the Lowy Institute said about the way China's approach has changed?
02:52 Well, China's approach has also shifted. There has been, of course, a mark shift since about
02:57 2016 in the sheer amount of Chinese aid coming into the Pacific. Since 2016, the amount of
03:03 direct traditional foreign assistance from China has actually fallen. And it's fallen
03:08 again in the most recent year, 2021, down to around $241 million. And the Lowy Institute
03:14 says the way China's doing this has changed. It stopped its so-called brash approach, where
03:19 it would fund big and often flashy projects in a number of Pacific Island countries. And
03:24 it's now moving to what it's called in a broader bit of terminology, small and beautiful
03:29 projects, which the Lowy Institute says are actually more tightly targeted. They're smaller
03:33 projects, but they're aimed very firmly at political elites, particularly in countries
03:37 where China's making headway like Kiribati and Solomon Islands. And they're designed
03:42 to win as much political favour as possible for Beijing. Now, it's also worth noting,
03:46 Ros, that even though China has stepped back as a direct aid donor, it still does play
03:50 a big role in other ways. And particularly at the moment, a lot of the funds that are
03:55 coming through the ADB and other multilateral institutions are then actually being handed
04:00 to Chinese state-owned companies who take responsibility for those major projects. And
04:04 China's of course also intent on ratcheting up its strategic presence in the region. So
04:09 the Lowy Institute's map here doesn't say China is not a factor in the Pacific, far
04:13 from it. But the way China is operating has changed in some ways quite dramatically.
04:18 [BLANK_AUDIO]