The Federal Government has said it had made adequate arrangements to source for funds from other partners as China appears to have halted further loans to the country.
The Nation had reported that the Chinese government had applied the brakes on releasing funds for some projects it had earlier agreed to co-finance with the Federal Government. A source familiar with the development had told The Nation that the Chinese government was worried about the political and security situation in Nigeria.
According to the source, ”the Chinese funders are no longer comfortable with the political and security situation in the country”.
The source also said several Chinese workers had been kidnapped in recent times in Nigeria.
Responding to China withdrawing its funding to Nigeria, the Director General of the Debt Management Office (DMO), Ms. Patience Oniha, said: “We are diversifying our sources of funding. So, we are not dependent on just one source, whether in the international/external or domestic borrowings.”
Speaking on the claim of China withholding its loans to Nigeria, Oniha explained that “officially, we don’t have a communication from China saying: ‘We’re not lending again’. So, we’re still in discussion with them as we speak on a continuous basis”.
She added: “For some of those things they read in their report, they came to my office and gave us their plan for lending to Africa. They’re pretty focused on what they’re doing. China has moved up significantly, planning their lending: ‘What we will lend, for which country in Africa’ and all that. They’re getting sophisticated, like the advanced countries.”
Oniha put Nigeria’s debt to China to around $3.6 billion.
“It is about 10 per cent of our external debt. So, when you compare it to our total debt, it’s probably at about 3 per cent. So, what I’m saying is we like them, we can see the airport and rail. But truly, they’re not the major source of our funding.”
The total borrowing from China is concessional with interest rates of 2.50 per cent per annum, tenor of 20 years and grace period (Moratorium) of seven years. These loan terms are compliant with the provisions of Section 41 (1a) of the Fiscal Responsibility Act, 2007.
Besides, 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.
The DMO’s Director General also explained why government chose to go for external borrowing instead of concentrating on domestic borrowings. In going external, she said Nigeria could not have raised the N5.4 trillion it borrowed last year from the domestic market because of lack of capacity.
She said: “If we do, we’ll be accused, rightly so, that we are crowding out. And we have taken all the money; corporates can’t access the money.
“There’s a strategy behind it, and domestic interest rates are higher. So, first of all, you look at the capacity of the domestic market, you look at crowding out.”
In going external, Oniha said: “We achieve two things. One of the advantages is that we could raise 30-year funds. But now in the domestic market, since 2019, we have 30-year funds. Both ways, we have long-tenured funds. But don’t forget: with external borrowing in the form of Eurobonds, it hits your external reserves.”