China Loans: DMO Says No Cause For Alarm

Following widespread fears over new tranche of loan by the federal government, the Debt Management Office (DMO) says the government’s borrowing from China is based on need, and necessary approvals received to raise capital from several domestic and external sources to finance capital projects, in order to promote economic growth and development, and job creation.

The agency further disclosed Nigeria raise capital from multilateral and bilateral sources because they are concessional, cheaper in terms of costs, and more convenient to service because they are usually of long tenors with grace periods.

DMO argued that 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.

It also noted that loans from concessional lenders have limits in terms of the amounts that they can provide to each country, pointing out that 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.

DMO therefore disclosed that borrowing from China-Exim is one of such means of ensuring that Nigeria has access to more long term concessional loans, pointing out that 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 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.

“The possibility of a takeover of assets by a lender does not exist, because 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% 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 statement read.