Laos inaugurated a rail link with China valued at $ 6 billion, but analysts warn that the work leaves the government exposed to a potential debt crisis.
The track will connect the capital Vientiane with Kunming in southern China, and there are plans for a high-speed train to Singapore, via Thailand and Malaysia.
Lao President Thongloun Sisoulith said at the inauguration that the train opens “a new era of modern infrastructure development” in the impoverished country.
The government expects the train to generate profits by 2027, but analysts express concern about the weight of Chinese borrowing from this and other projects.
With a tiny local market, “an expensive railroad” linking the country of 7 million people with Kunming “makes little business sense,” Jonathan Andrews Lane noted in a report by the Asian Development Bank Institute.
Their analysis determined that the potential benefits to Laos do not outweigh the risks. “Debt service will put pressure on the government’s poor ability to collect taxes,” Lane wrote.
Laos will have to spend large amounts of money to pay for the railway, built as a Laos-China joint venture under Beijing’s multi-million dollar “new silk roads” initiative.
The country’s debt stands at $ 13.3 billion, nearly three-quarters of its GDP, so experts fear Laos is on the brink of default. This could leave it more tied to China, the creditor of 47% of its debt.
– Hidden debt –