Credit crunch: Chinese infrastructure lending and Lao sovereign debt

Lao PDR's push for large infrastructure-led economic growth has been delivered through a significant amount of financial leverage and a build-up of sovereign debt obligations. The government now finds itself in danger of a sovereign default. This article traces the roots of this debt crisis over the past decade, focusing particularly on the role of hydropower. A significant share of infrastructure lending to Laos has been through Chinese policy banks. We argue that over-lending to dam projects focused on the domestic energy market has been at the core of Laos' debt situation. Through 2020 the Lao Government has undertaken a series of restructuring measures, including privatisation of state assets, engaging in debt renegotiations with China, and attempts to secure new short-term credit. We outline a range of other options Laos has to reschedule or restructure their sovereign debt, and offer policy targeted recommendations focusing on reforms in the energy sector.