By Doug Dingwall and Tonga reporter Marian Kupu, ABC
Photo: RNZ Pacific/ Koroi Hawkins
It wasn't long ago that rain would stop Martha Kapalu from travelling to the southern reaches of her island in Vanuatu.
Tropical downpours would drench the dirt roads, making them hard for cars to pass - a common problem throughout the nation's outer islands.
A new tar-sealed road, financed by a loan from China and completed in 2019, now connects Kapalu's home to other parts of Tanna island, including its south.
"It's helped us a lot. If we want to go someplace further away, it makes it more easy," she said.
People growing fruit and vegetables use the road to take produce to the town market.
Visitors also use it on their way to Tanna's major attractions, including Mount Yasur volcano, Kapalu said.
The infrastructure project, funded through a $US63 million ($96m) loan for road upgrades on Tanna and Malekula - another island of Vanuatu - was a beginning of sorts.
China has since lent the Pacific Island country money for other road upgrades, which have been celebrated locally for easing travel and promoting economic growth.
But Vanuatu's climbing debt levels, combined with economic shocks from natural disasters and a collapsed national airline, may weaken its appetite for more loans.
Over the past 20 years, China has become the largest lender in the Pacific.
Now Tonga, Vanuatu and Samoa are spending some of the biggest sums in the world to repay debts to China, as a proportion of their GDP, according to Lowy Institute analysis.
Tonga's annual debt repayments to China are nearly 4 percent of its GDP - the third-highest level in the world.
It's a rate that Lowy research associate Riley Duke calls "astronomically high".
"On a global scale, it's really significant," he said.
In Samoa, debt repayments to China are 2.6 percent of GDP - the fourth-highest rate in the world - while Vanuatu's debt repayments (nearly 2 percent) also put it in the top 10.
Debt repayment to China
Photo: ABC / Lowy Institute
Fiji, Papua New Guinea and Cook Islands also have moderate levels of public debt exposure to China, according to the AidData research lab at William & Mary, a Virginia-based public university in the United States.
Aid and development experts say the debts carry large risks for Pacific Island nations, where frequent natural disasters and economic shocks can hobble their repayments.
It means their governments can face difficult choices as repayment deadlines loom, including sacrificing spending on pressing needs like health and climate change adaptation.
But some say there are new options for Pacific countries to explore that do not involve cutting public services or using revenue from potentially harmful industries to pay down debts.
A debt mountain
After civil unrest struck Tonga in 2006, its devastated capital city Nuku'alofa needed rebuilding.
As the nation's government looked for funding, it was China offering the largest loan.
A former finance minister, Aisake Eke, said Tonga had little choice - it was the highest sum being offered by foreign countries and lending institutions.
"If there was no public riot in 2006, there would be no loan from China," he said.
"We were forced into this kind of situation."
Nearly 20 years later, a rebuilt Nuku'alofa shows no physical signs of the violent turmoil.
But Tonga has a steep hill to climb to repay the US$104m loan before 2030, when the debt is due.
As it struggled to find money for repayments after taking on the debt, Tonga's government negotiated for China's state-owned creditor EXIM Bank to extend its interest-only payment period.
China didn't defer the repayment deadline.
"All of those renegotiations that have happened over the last 10 years have just meant that the debt burden closer to the deadline is getting larger and larger," Duke said.
While Tongan Finance Minister Tiofilusi Tiueti has said the government will meet the deadline, its annual repayments to China have surpassed US$17m since it started paying off the principal of the loan two years ago.
Duke said it was a hard debt burden to carry in a region that faced major challenges to economic growth.
"A loan of that size … is very difficult for an economy of Tonga's size to pay back," he said.
AidData analysis has found 85 per cent of China's loan-financed infrastructure projects in Tonga show signs of debt distress.
And multiple shocks have put more pressure on Tonga's finances.
Two tropical cyclones, and the Hunga-Tonga Hunga-Ha'apai volcanic eruption and tsunami, hit in the space of five years.
Tonga's finance minister said the government would help fund the debt repayments by improving how it collected tax.
A $30m budget lifeline from Australia has also helped by funding public services, giving Tonga's government financial breathing space to make debt repayments to China, Duke says.
But loan repayments to China commonly drain resources from public services such as health and education, and other pressing needs in the region, he says.
He said in Tonga's case, the government was spending more on servicing its debt than on health.
"Pacific countries … have some of the highest costs in the world in terms of climate adaptation needs," he said.
"But these are things that have to be deprioritised to deal with the debt.
"It's a trade-off and it's not one that's good."
Vanuatu facing upgraded risk of debt distress
Vanuatu has struggled less with its debts to China, compared to Tonga.
It has met its loan repayments, and none of China's loan-financed infrastructure projects are in debt distress, AidData says.
But a series of economic shocks have set the nation back, including three tropical cyclones in 2023 and the collapse of its national carrier in May.
Vanuatu's Finance Minister John Salong said it was possible the International Monetary Fund would upgrade Vanuatu's risk of debt distress to high next month, adding the country to a list that already includes Pacific neighbours Tonga and Samoa.
Duke said Vanuatu's precarious economic situation raised questions about other proposed new road projects by China.
"They're not really in a position to take on a huge amount more debt … it's very unlikely they'll be able to repay the loans," he said.
He said loan-financed infrastructure projects needed a clear economic case for Pacific nations.
"If it doesn't drive growth, then they just accrue debt they're not going to be able to pay off," he said.
Salong said new roads in Vanuatu's outer islands served important economic purposes.
In Tanna, the infrastructure helped tourism, he said. While in Malekula and Pentecost islands, where China had built roads, it had benefits for agriculture.
"We want to be able to take loans for infrastructure that will be able to grow the economy, not just continue to grow infrastructure for the sake of building more infrastructure," Salong said.
"We need to consider everything now that we are getting to the point where the IMF will review our debt sustainability, and possibly not invest in any more new roads in any more islands, but try to [leverage] the roads that we have built thus far … so that we can have activities that generate more business."
The note of caution is echoed in Tonga.
Its finance minister said the government would not accept any more loans unless they were highly concessional.
A different road to relief
The debt challenges for Pacific Island nations present a conundrum for China too, experts say.
While it wants to gain influence in the region, it is also risky to waive debts and create a precedent for other countries owing much larger sums.
Duke said the money Pacific Island nations owed to China were "rounding errors" for the world's second-largest economy.
"That also cuts both ways and because the sums are so small, they're just very low priority for the Chinese government … [and] they're less likely to change their approach in the Pacific case," he said.
Experts say China's EXIM Bank does not forgive foreign debts.
"It will ease borrowing terms by extending repayment moratoria or pushing out final loan repayment dates. However, it rarely reduces interest rates," Bradley Parks, executive director of AidData, said.
"When interest rate reductions have taken place in the past, they have been very modest; usually a reduction of a single percentage point or less."
Griffith Asia Institute director Christoph Nedopil Wang said it was also not in China's interests for Pacific Island nations to enter debt distress.
There can also be global risks by forcing countries to look to environmentally damaging industries such as logging to make money to help fund repayments.
"It's very difficult for [Pacific nations] to just say we have to pay back the debt," he said.
"It's not necessarily in the global interest to see that happen. These are most likely irreversible changes just to pay back a couple of million dollars."
Dr Nedopil Wang believes the Pacific's debt situation has been partly driven by China's naivety about the risks of lending.
He said the question now was whether China would use more innovative ways to reduce debt.
A debt-swapping agreement between China and Egypt in October may point to a solution to unsustainable debts in the Pacific.
Under debt swaps, creditors forgive part of the debt owed in exchange for investments that have a positive outcome, such as environmental protection or renewable energy.
Dr Nedopil Wang said similar agreements had produced positive results in island nations such as Barbados and Seychelles.
"If you want to solve it sustainably, we need some innovative financial solutions," he said.
The ABC approached the Chinese embassy in Canberra, and the Samoan government, for comment.
-This story was first published by the ABC.