The Debt Management Office (DMO) has said that China is not a major source of funding for the federal government as the total borrowing from China was only $3.121 billion (N1.126.68 trillion) at an exchange rate of $1/N361 as at March 31.
The amount represents 3.94 per cent of Nigeria’s total public debt of $79.303 billion or N28,628.49 trillion, even as loans from China accounted for 11.28 per cent of the external debt stock of $27.67 billion as at the reference date.
The DMO, in a statement yesterday and captioned ‘Facts about Chinese Loans to Nigeria,’ said: “This amount represents only 3.94 per cent of Nigeria’s total public debt of $79.303 billion (N28,628.49 billion at $/N361) as at March 31, 2020. Similarly, in terms of external sources of funds, loans from China accounted for 11.28 per cent of the external debt stock of $27.67 billion at the same date.
“These data show that China is not a major source of funding for the Nigerian Government.”
It explained that the total borrowings from China of $3.121 billion as at March 31, 2020, are concessional loans with interest rates of 2.50 per cent per annum, 20 years tenor and seven years grace period (moratorium).
The statement added that the terms and other details of the loans are available the DMO website.
DMO said the terms were compliant with the provisions of Section 41 (1a) of the Fiscal Responsibility Act (FRA), 2007.
“In addition, the low interest rate reduces the interest cost to government while the long tenor enables the repayment of the principal sum of the loans over many years. These two benefits make the provisions for debt service in the annual budget lower than they would otherwise have been if the loans were on commercial terms.
“The $3.121 billion loans are project-tied loans. The projects (eleven – 11 in number as at March 31, 2020), include: Nigerian Railway Modernisation Project (Idu-Kaduna section), Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernisation Project (Lagos–Ibadan section) and rehabilitation and upgrading of Abuja–Keffi–Makurdi Road Project,” it stated.
According to DMO, the impact of these loans is not only evident but visible, adding for instance, that the Idu–Kaduna rail line has become a major source of transportation between Abuja and Kaduna.
It stated that the new international airport in Abuja has improved air transportation for the populace, while the Lagos-Ibadan rail line, when completed, will ease traffic on the busy Lagos-Ibadan Expressway.
“The projects also have the added benefits of job creation, not only by themselves but through direct and indirect service providers, a number of which are small and medium enterprises.
“It is widely accepted that investment in infrastructure is one of the most effective tools for countries to achieve economic growth and development. Using loans from China to finance infrastructure is thus in alignment with this position,” the DMO said.
On the process by which the loans were obtained, the agency noted that the principal process and requirements for borrowing by the government are expressly stated in the Debt Management Office Establishment (ETC) Act, 2003 (DMO Act) and the Fiscal Responsibility Act, 2007.
According to the statement, Section 21 (1) of the DMO Act provides that “no external loan shall be approved or obtained by the minister unless its terms and conditions shall have been laid before the National Assembly and approved by its resolution.”
It also cited Section 41 (1a) of the FRA that states that “government at all tiers shall only borrow for capital expenditure and human development, provided that, such borrowing shall be on concessional terms with low interest rate and with a reasonable long amortisation period subject to the approval of the appropriate legislative body where necessary.”
According to the statement, the Federal Ministry of Finance, Budget and National Planning works with the MDAs under whose portfolio a proposed loan is secured.
“Thereafter, the approval of the Federal Executive Council (FEC) is sought. It is only after the approval by FEC that His Excellency requests for the approval of the National Assembly as required by Section 41 of the Fiscal Responsibility Act, 2007. More importantly, it is only after the approval of National Assembly that the loans are taken and Nigeria begins to drawdown on the loans.
“In summary, borrowing is a joint activity between the Executive (FEC) and the legislative arms of government,” the DMO said.
Providing further insight into how rigorous the loan documentation could be, the DMO stated that loan agreements are reviewed by legal officers of the Federal Ministry of Justice and the legal opinion of the Attorney-General of the Federation and Minister of Justice is obtained before any external loan agreement is signed.
On the question of whether or not China can take possession of the projects financed by them if Nigeria defaults in the servicing of the loans, the DMO noted that in the first place, Nigeria explicitly provides for debt service on its external and domestic debt in its annual budgets, adding that in effect, this means that debt service is recognised and payment is planned for.
“In addition, a number of the projects being (and to be) financed by the loans are either revenue generating or have the potential to generate revenue,” it said.