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.