DMO Provides
DMO Provides Facts on$3.1bn Chinese Loans to
Nigeria
The attention of the Debt Management Office (DMO), has been
drawn to statements and reports credited to several persons on the
subject of Loans obtained from China and has considered it
necessary to provide a sequel to its Press Release on the same
subject.
The general public is encouraged to be guided by the facts in
this Press Release.
How Much Loan has Nigeria Taken from China?
As at March 31, 2020, the Total Borrowing by Nigeria from China
was USD 3.121 billion. This amount represents only 3.94% of
Nigeria’s Total
Public Debt of USD79.303 billion as at March 31, 2020.
Similarly, in terms of external sources of funds, Loans from
China accounted for 11.28% of the External Debt Stock of USD 27.67
billion at the same date. These data, show that China is not a
major source of funding for the Nigerian Government.
What are the Terms of the Loans from China?
The Total Borrowing from China of USD 3.121 billion as at March
31, 2020, are concessional Loans with Interest Rates of 2.50% p.a.,
Tenor of Twenty (20) years and Grace Period (Moratorium) of Seven
(7) years. The Terms and other details of the Loan are available at
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.
What Were the Loans Used For?
The USD 3.121 billion Loans are project-tied Loans. The
projects, (eleven – 11 in number as at March 31, 2020), include:
Nigerian Railway Modernization Project (Idu-Kaduna section), Abuja
Light Rail Project, and Nigerian Four Airport Terminals Expansion
Projects (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway
Modernization Project (Lagos-Ibadan section) and Rehabilitation and
Upgrading of Abuja – Keffi- Makurdi Road Project. See a Full List
of the Projects at dmo.gov.ng.
The impact of these Loans 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 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.
What Is the Process by which the Loans were obtained?
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. 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 amortization 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 please go to “External and Domestic Borrowing Guidelines
for Federal Government, State Government and the Federal Capital
Territory and their Agencies” at
dmo.gov.ng/publications/other-publications/borrowing-guidelines
To summarise, the Federal Ministry of Finance, Budget and
National Planning works with the 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
Fiscal responsibility Act, 2007. More importantly, it is only after
the approval of NASS 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 (NASS) Arms of
Government.
How Rigorous is the Loan Documentation?
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 and Minister of Justice is
obtained before any External Loan Agreement is signed.
Can China Take Possession of the Projects Financed by them if
Nigeria Defaults in the Servicing of the Loan?
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.
By
DMO