The Financing of the Belt and Road Initiative: Blessings and Curses

Abstract

One of the main cornerstones of all programmes of infrastructures lies always on its financing. This is also the case of the Belt and Road Initiative (BRI). The initiative is estimated to be supported by around USD one trillion in financing from Chinese state-owned banks, close to ten times at current prices the amount made available by the United States for the reconstruction of Europe after the Second World War under the so-called Marshall Plan. Understanding the sources and the tools available for the financing of the initiative is critical to fully grasp BRI’s dimension and its expected impact in promoting economic development, connectivity and trade in Asia. This financing should be also observed and assessed in the context of the competition, but also the synergies, of the financing supplied by multilateral institutions like the World Bank Group or the Asian Development Bank. Finally, we will address the incipient negative externalities of the sources and tools of financing used in the context of the initiative that are starting to be felt in borrowing members, especially in relatively highly indebted countries. We argue that most of the risks identified are less severe than some critics suggest and that these risks are being relatively mitigated. Finally, we make some policy recommendations that could mitigate even further the identified risks.