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Nigeria Won’t Default on Chinese Loans—DMO Assures

By Dipo Olowookere

Nigerians have been urged not to panic over the loans obtained by federal government from China recently, saying there is no risk of default on any loan.

This assurance was given by the Debt Management Office (DMO) in a statement issued yesterday to allay fears that the Chinese lenders could take over assets of the country if it fails to repay the loans.

The debt office said claims of potential seizure of national assets by Chinese lenders in some African countries have not been validated.

According to the DMO, based on need, and subject to the receipt of requisite approvals, government can raise capital from several domestic and external sources to finance capital projects, in order to promote economic growth and development, as well as, job creation.

It said regarding external borrowing, federal government accesses capital from several sources; multilaterals, such as the World Bank and the African Development Bank, as well as, bilateral loans from various countries such as France (through the Agence Francaise de Development AFD), Germany (KfW), Japan (Japan International Cooperation Agency – JICA), India (India Development Bank) and China (China Export-Import Bank–EXIM).

The debt office noted that these loans from multilateral and bilateral lenders are typically used to finance specific capital projects across the country.

It disclosed further that the international capital market is another source of capital and that one of the reasons why Nigeria would raise capital from multilateral and bilateral sources is because they are concessional which means that they are cheaper in terms of costs, and more convenient to service because they are usually of long tenors with grace periods.

“Prudent management of the public debt implies that, the government should avail itself of the opportunity to access concessional loans which deliver twin benefits of being more cost efficient and supporting infrastructural development.

“Loans from concessional lenders have limits in terms of the amounts that they can provide to each country.

“This makes it necessary for Nigeria to have several sources for accessing concessional capital to increase the total amount available and also, to avoid undue dependence on only a few sources of concessional funds.

“Borrowing from China Exim is one of such means of ensuring that Nigeria has access to more long term concessional loans. Given the country’s infrastructure deficit, which needs to be urgently addressed, the loans from China Exim, which provide financing for critical infrastructure in road and rail transport, aviation, water, agriculture and power at concessional terms, are appropriate for Nigeria’s financing needs and align properly with the country’s debt management strategy,” the statement said.

“The public should be assured that Nigeria’s public debt is being managed under statutory provisions and international best practice, and there is no risk of default on any loan, including the Chinese loans.

“Thus, the possibility of a takeover of assets by a lender does not exist. For the avoidance of doubt, the government’s borrowing in the domestic and external markets, including Chinese loans are all backed by the full faith and credit of the government, rather than a pledge of the government’s assets.

“Finally, borrowing from China should not be seen from a negative perspective as they are being used to finance Nigeria’s infrastructural development at concessional terms.

“Moreover, China Exim loans are only one of the sources of multilateral and bilateral loans accessed by Nigeria and represented only about 8.5 percent of Nigeria’s external debt as at June 30, 2018.

“Nigeria’s public debt remains sustainable and there is also no risk of default because of Nigeria’s sound debt management practices,” the agency stated.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan.

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