By Mir Afroz Zaman

Uncertainty has arisen about Bangladesh's ability to pay its debt to China. Bangladesh is already immersed in political unrest. At the same time, economic instability has appeared due to recession in the US market. Anti-government protests against the job quota system began in the country amid high unemployment and debt pressures. The protests became widespread within weeks. Due to which Sheikh Hasina resigned on Monday (August 7) and took refuge in India. According to China South Morning Post.

An interim government will be formed in Bangladesh, which could pave the way for elections, the report said. The country's parliament has already been dissolved. In a brief statement, China's Ministry of Foreign Affairs said that Beijing is closely monitoring the situation in Bangladesh.

It said, 'As a friendly neighbor and strategic partner, China sincerely hopes that Bangladesh will restore social stability in a short period of time. Hasina's resignation amid chaos comes at a time when the global economy is also in recession. The slowdown in the US market in particular has added to this concern. This financial instability will put pressure on the debt repayment capacity of various low-income countries. Besides, China will also face challenges as a major creditor.

China is Bangladesh's third largest lender after Japan and Russia, and Beijing has loaned more than USD 5 billion to Bangladesh by the end of 2023, according to a Daily report.

Ahead of Hasina's visit to China in July, she sought an additional US$5 billion loan. Meanwhile, China has not reacted since student protests started in June. However, according to the sources of the Ministry of Foreign Affairs of Bangladesh, Beijing has repaid 1 billion yuan (140 million dollars) for economic assistance.

Lin Minwang, deputy director of the Center for South Asian Studies at Shanghai's Fudan University, said Hasina's resignation has created uncertainty about Bangladesh's debt repayment capacity. It is also unclear what the country's next administration's policy towards Beijing will be.

China has been supporting the Sheikh Hasina government for several years. On the other hand, Sheikh Hasina's opposition party in Bangladesh has been strictly suppressing BNP. China's past support for Sheikh Hasina could complicate the situation if the BNP is assumed to come back to power, Lin said.

Lin Minwang said BNP has traditionally been friendlier to Pakistan and China than to India. China has been maintaining relations with BNP for years. During his visit to Bangladesh in 2016, President Xi Jinping discussed the Belt and Road Initiative with BNP leader Khaleda Zia. Former Prime Minister Khaleda Zia was released from house arrest on Tuesday after Hasina's ouster.

The World Bank said on Monday that it is assessing the impact of current events in the country on its loan program with Bangladesh. According to Daily report, Bangladesh's foreign debt exceeded 100 billion US dollars for the first time last year, including 19.53 billion US dollars owed to the World Bank. The country is paying US$251 million in interest to China every year.

ADB's former chief economist Jayant Menon, a senior fellow at Singapore's ISEAS-Yusuf Ishak Institute, said, 'It is too early to say how the political unrest in Bangladesh will affect China's debt repayment capacity. This is considered to have no real impact at the moment.

Menon said these are universal obligations that any new government must fulfill if it wants to retain credibility in global financial markets. '

At the same time, China is under high pressure on its economy, with the country's economy losing momentum due to the property crisis. China is one of the major funders of developing countries. Between 2000 and 2021, China provided $1.34 trillion in grants and loans for nearly 20,000 projects in 165 low- and middle-income countries, according to Aid Data.

On the other hand, some countries are also leaning towards China as interest rates in the global financial markets rise as a result of the US Federal Reserve rate hike. Increased US dollar-denominated debt repayments for low-income countries. But China has appeared increasingly wary of lending. Under his Belt and Road Initiative, there has been a shift from big spending on infrastructure to high-quality projects. At last month's Third Plenum (an assembly that determines the country's future economic policy), the Communist Party's Central Committee highlighted green and digital projects as key directions in the plan.

In two years, Bangladesh is the second country in South Asia which is going through such a political crisis. In 2022, then Sri Lankan President Gotabaya Rajapaksa resigned amid economic and political chaos in the country. In the following months, Colombo sought an agreement with major creditor countries, including China, to restructure its US$10 billion bilateral debt.

Sichuan University international affairs professor Pang Zhongying said, however, the situation in Bangladesh is different. Bangladesh's economic situation is not that bad yet, although they have many problems of their own. However, former Prime Minister Sheikh Hasina is being blamed for these problems.