News Desk
Port Vila, Vanuatu — This Pacific island nation, grappling with political instability since independence in 1980, faces an uncertain debt outlook that has observers worried about its vulnerability to Chinese infrastructure lending.
A revolving door of prime ministers, three in just one month last year due to successful no-confidence votes, has hampered governance and eroded public trust. The upheaval prevented passage of key legislation, including the 2024 budget.
China has emerged as Vanuatu’s top creditor after a decade of building projects like a new parliament building, roads and airports. The prestigious Lowy Institute, an Australian think tank, warns that apparent plans for Vanuatu to take on another large Chinese infrastructure loan could push its debt levels past the International Monetary Fund’s threshold for high risk of debt distress as soon as 2024.
“Vanuatu’s newly elected government will need to consider politically hard options,” the Lowy Institute said, suggesting measures like reducing reliance on Chinese lending, raising taxes and cutting spending.
The institute said Vanuatu should at least request more concessional financing terms from China for the proposed Malekula Road project, which it called a potential tipping point. China “should be willing to review the project, as proceeding would seem a clear case of irresponsible lending to a vulnerable economy,” the report stated.
Vanuatu’s crisis has geopolitical overtones, with opposition figures accusing incumbents of compromising “neutrality” through security cooperation with Australia, a major aid donor along with the United States, which plans to open an embassy.
Beijing, which touts a “shared future” with Pacific islands, has sent several delegations, including Liu Jianchao, head of the international department of China’s ruling Communist Party. Mr. Liu visited just ahead of Vanuatu’s recent referendum, fueling speculation over Beijing’s intentions.
Some analysts see an effort to draw the region into China’s orbit. But Beijing says its Pacific engagement is focused solely on mutual development, not geopolitical jousting with any “third party.”
For Vanuatu’s leaders, balancing strategic ties and averting a debt crisis will require deft maneuvering on the global stage.
