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Chinese loans merely 11.28% of external debt as at March, FG clarifies

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Federal Government has called for calm over allegations about the conditions attached to Chinese loans received from the Chinese Government and multilateral lenders, stressing that as at March 31, 2020, the total borrowing by Nigeria from China was $3.121 billion.

   According to the Federal Ministry of Finance, Budget and National Planning, in a statement quoting the Debt Management Office, loans from China account for 11.28% of the External Debt Stock of $27.67 billion at the same date, indicating that China is not a major source of funding for the Federal Government.

   “The total borrowing from China of USD3.121 billion as at March 31, 2020, are concessional Loans with Interest Rates of 2.50% per annum, Tenor of Twenty (20) years and Grace Period (Moratorium) of Seven (7) years.

   “These terms are compliant with the provisions of Section 41 (1a) of the Fiscal Responsibility Act, 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.”

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   Speaking on what the loans were used for, the statement added that the $3.121 billion loans are project-tied loans.

   “The projects, 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 is not only evident but visible. For instance, the Idu – Kaduna rail line has become a major source of transportation between Abuja and Kaduna. Also, 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 statement also maintained that the projects have also 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 (SMEs).

   The statement said: “The loan agreements are reviewed by legal officers of the Federal Ministry of Justice and the legal opinion of the Honourable Attorney-General of the Federation (AGF) and Minister of Justice is obtained before any external loan agreement is signed.”

   On whether China can take possession of the projects financed by them if Nigeria defaults in the servicing of the loan, the statement also explained, “Firstly, Nigeria explicitly provides for debt service on its external and domestic debt in its annual budgets. 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 would be recalled that Mrs. (Dr.) Zainab Ahmed the Honourable Minister of Finance, Budget and National Planning, had earlier in the year reaffirmed her position that Nigeria does not have a debt problem but the challenge of under-performing revenues, which makes debt service obligation a struggle for the country. Then, before the outbreak of globally threatening coronavirus (COVID19), she had insisted that at about 19 percent of its gross domestic product (GDP), Nigeria has no debt crisis, but that of revenue.

   However, Mrs. Ahmed did acknowledge that there is a problem. According to her, what Nigeria has is a revenue challenge. She also noted that since this problem was identified, the President Buhari-led government has been working hard to solve it by looking at various means to boost revenue.

“Currently, Nigeria’s debt is at N25 trillion; that is about $83 billion. And at $83 billion, we are just at 18.99 percent…So, 19 percent debt to GDP. I hear people say Nigeria has a debt problem. We do not have a debt problem. What we have is a revenue challenge and the whole of this government is currently working on how to enhance our revenues, to ensure that we meet our obligation to service government as well as to service debt.”

   In recent months, global crude oil prices have plummeted due to an outbreak of the coronavirus across almost all nations of the world. Not long ago, Nigeria’s government revised the 2020 budget oil benchmark from $57 per barrel to $28 while production output was also revised from approximately 2.1 million barrels to 1.7 million per day.

   There were key highlights released at the webinar conference by Ahmed which includes plans to defer debt service obligations to 2021 and beyond until macro conditions improve. Shedding further light, the minister had stated, “it is not debt forgiveness; it is just rescheduling of our obligations.”

By Joy Obakeye, Lagos

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