There has been disquiet over a recent report alleging that Nigeria has defaulted on Chinese loan repayment and stands the risk of paying a penalty amounting to N41.31 billion.
The report quoted the Debt Management Office (DMO, which said Nigeria has failed to fully service its debt to China, which has accumulated to N110.31 billion in the last two years.
According to the report, the China debt stock included the principal and repayment charges. It puts the principal fee from January 2021 to December 2022 at N69 billion ($153.85 million) and interest charges at N41.3 billion ($92.1 million).
DMO, according to the report, said the debts were incurred following the completion of the Nigeria Railway Modernisation Project (Idu-Kaduna Section), Nigeria Railway Modernisation Project (Lagos-Ibadan Section) and the Nigeria Abuja Light Rail Project.
A breakdown of the data showed that in 2021, Idu-Kaduna Section’s principal fee was $38.46 million (N17.25 billion) while interest earmarked was $9.5 million (N4.26 billion). The Lagos-Ibadan section’s principal was not noted, although its interest stood at $ 24.07 million (N10.80 billion).
During the period, the Abuja Light Rail Project recorded a principal amounting to $38.46 million (N17.25 billion), while the interest rate accumulated to $11.45 million (N5.14 billion).
As at 2022, according to the report, the principal on Idu-Kaduna Section was $38.46 million (N17.25 billion), while the interest fee was $8.52 million (N3.82 billion). The Lagos-Ibadan Section interest fee stood the highest at $ 28.06 million (N12.59 billion) with the principal amount not indicated.
The Abuja Light Rail Project’s principal was $38.46 million (N17.25 billion), with accumulated interest charges of $10.48 million (N4.70 billion).
But the DMO in a rebuttal posted on its website urged the general public to ignore the publication describing it as false.
The Guardian made effort to confirm Nigeria’s faithfulness to obligations from the DMO, but only received a vague response. The Director-General of DMO, Ms. Patience Oniha, in a text message response to the newspapers inquiries on the state of the Chinese loans and when the last matured loans were liquidated, simply said that “debt service is a continuous activity with each interest and principal repayment made at due date”.
She also referred our correspondent to a recent interview she granted a television station where she shed light on debt stock and debt service.
According to her in the interview, “the debt stock is growing because Nigeria has been running a budget deficit for decades and those deficits are funded over 80 per cent by borrowing.”
She said it was almost impossible for Nigeria to default in loan servicing as one of the tools government has adopted is to have different maturity dates for the debt instruments.
“Our debt services are very carefully planned not only do you have it in the budget, you see the lines, you see the domestic, you see the external. It is not just okay, something is happening here, the plan has been provided for in the budget,” Oniha said in the interview.
She added: “Both the Minister of Finance, Budget and National Planning and the Central Bank governor has information as to what is maturing at what time because you need to plan for it.
“These are not ad-hoc or impromptu arrangements, you need to plan for it. Those are part of the debt management that we do.”
She said Nigerians should not be worried or surprised that the government is borrowing money to support its development projects.
According to her, “The Economic Recovery and Growth Plan (ERGP) of the government clearly stated that the government needed to borrow and plans were spelt out on how to pay. That was what helped us to exit the recession when we did.”
China is Nigeria’s major creditor. So far, the Federal Government’s borrowing from China has grown from $1.58 billion as of June 2015 to $5.07 billion in December 2022, while the total public debt as at December 2022 is N46.25 trillion.
The huge and rising Nigeria’s indebtedness to China raises concerns about a possible default.
The nation is currently spending over 80 percent of its revenue on debt servicing, a situation the Minister of Finance, Budget and National Planning, Zainab Ahmed, described as suffocating. She said the federal government was putting plans in place to bring it down to 60 per cent this year.
Although Nigeria’s debt to GDP ratio is 23 per cent which is lower than the 40 percent national projection, Oniha had confessed that she was concerned about the rising debt even though she did not doubt Nigeria’s ability to repay. She lamented over the poor state of revenue, which she said, must improve to percent default.
Speaking on the debt crisis, Fiscal Policy Partner and Africa Tax Leader at PwC, Taiwo Oyedele, said one factor contributing to rising debt is the inefficiency of government spending and questionable priorities.
“Rather than prioritise basic infrastructure and human capital development, we often incur expenses on white elephant projects and even when the projects are desirable, the costs are often inflated and completion time unduly protracted leading to cost escalation and lower public value,” he said.
Also speaking, the Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, said that the issue is that there are so many revenue leakages. “So much that should have come to the treasury for government to work with is not coming in,” he said.
According to him there are a lot of projects that the government should have handed off to the private sector. An example of such is the railway, .
“Even if government lays the tracks, government does not have to run the wagon, it is just like building a road and people buy buses,” he said.
