Nigeria Economy | |
Nigeria Economy | |
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Friday,
June 19, 2020 / 09:36 AM / By DMO Nigeria / Header Image
Credit: Channels TV
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 dated
September 11, 2018.
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 USD3.121 billion (N1,126.68 billion at USD/N361). This amount represents only 3.94%
of Nigeria's Total Public Debt of USD79.303 billion (N28,628.49 billion at USD/N361) 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 USD27.67 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 USD3.121 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 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.
What Were the Loans Used For?
The
USD3.121 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, Nigerian Four Airport Terminals
Expansion Project (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 www.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" here.
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.
Download Here - Status of Loans Obtained from China Exim As At March 31, 2020
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