Will Djibouti become latest country to fall into China’s debt trap?

Djibouti lies more than 2,500 miles from Sri Lanka but the East African country faces a predicament similar to what its peer across the sea confronted last year: It has borrowed more money from China than it can pay back.

In both countries, the money went to infrastructure projects under the aegis of China’s Belt and Road Initiative. Sri Lanka racked up more than $8 billion worth of debt to Chinese sovereign-backed banks at interest rates as high as 7 percent, reaching a level too high to service. With nearly all its revenue going toward debt repayment, last year Sri Lanka resorted to signing over a 70 percent stake and a 99-year lease to the new Chinese-built port at Hambantota.

Djibouti is projected to take on public debt worth around 88 percent of the country’s overall $1.72 billion GDP, with China owning the lion’s share of it, according to a report published in March by the Center for Global Development.

It, too, may face the possibility of handing over some key assets to China.

As Chinese President Xi Jinping continues to push lending to developing countries, policy analysts are sounding alarm bells about the fate of smaller nations biting off more than they can chew—and the strategic possibilities opening to China as a result.

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