Against the backdrop of a series of reports credited to several persons on the subject of loans obtained from China, the Debt Management Office (DMO) has considered it necessary to provide substantial details, encouraging the public to be so guided by the facts there highlighted.
On how much loan Nigeria has taken from China, Ms. Patience Oniha, Director-General (DG) of DMO, says as at March 31, 2020, the total borrowing by Nigeria from China was USD3.121 billion (N1,126.68 billion at USD/N361). This amount, according to her, represents only 3.94 percent of Nigeria’s total public debt of USD79.303 billion (N28,628.49 billion at USD/N361). Similarly, in terms of external sources of funds, loans from China accounted for 11.28 percent of the external debt stock of USD27.67 billion at the same date. These data, show that China is not a major source of funding for the Nigerian government.
Shedding some light on the terms of the loans from China, she explains: “The total borrowing from China of USD3.121 billion as at March 31, 2020, are concessional loans with interest rates of 2.50 percent p.a., tenor of twenty (20) years and grace period (moratorium) of seven years. The terms and other details of the loan are available at www.dmo.gov.ng.”
“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,” she states.
Speaking on what were the loans used for, the DG says the USD3.121 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, flagging a full list of the projects on www.dmo.gov.ng.
The impact of the loans, in her words, “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.”
In her opinion, 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 (SMEs).
Her position corroborates the widely accepted view 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.
On the process by which the loans were obtained, Ms. Oniha further states: “The principal process and requirements for borrowing by the government are expressly stated in the DMO Establishment (ETC) Act, 2003 (DMO Act) and the Fiscal Responsibility Act (FRA), 2007. Section 21 (1) of the DMO Act, ‘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’ and section 41 (1a) of the FRA, ‘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’, are instructive in this regard.
For detailed information on the borrowing process and required approvals she charges the public to go to “external and domestic borrowing guidelines for federal government, state government and the Federal Capital Territory (FCT) and their agencies”.
Stating the connection among the ministry and the agencies involved in the processes of securing loans, Oniha makes it clear that the Federal Ministry of Finance, Budget and National Planning works with the ministries, departments and agencies (MDAs) under whose portfolio a proposed loan falls and also with the DMO. “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 (NASS) as required by section 41 of the FRA, 2007. More importantly, it is only after the approval of NASS that the loans are taken and Nigeria begins to drawdown on the loans,” she also states. In summary, borrowing is a joint activity between the executive (FEC) and the legislative (NASS) arms of government.
The rigor involved in the loan documentation could not miss her explanations; the loan agreements, according to her, “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? Oniha also explains: “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.”