The federal government is currently enmeshed in some credibility crisis as a result of the over $4billion debts owed to China. Ibrahim Apekhade Yusuf in this examines the issues
S Nigeria willing to repay its over $4billion debts to China? Well, that is the question of the hour as the issue of the unpaid debts is now being hotly debated in some quarters.
The crux of the matter is that there have been claims and counterclaims that the Nigeria’s’s debt stocks, especially external debts which has risen beyond reasonable measure, is not just a subject of heated controversy but may set the country on a collision course with its creditors on the long run.
According to some schools of thoughts, the country’s debt profile is a source of worry, especially with regards to the loans obtained from China.
Data from the World Bank shows that 49 African countries owe 39% of their debt to multilateral institutions, 35% to private creditors (excluding Chinese private creditors), and 12% of the debt burden on the continent is owed to China and Chinese lenders.
Analysts further argued that China’s debt is to say the least, troubling if not problematic because of the rippled negative effects on the economy.
There are few solutions being floated around. The IMF in February announced a new Global Sovereign Debt Roundtable to bring together the full gamut of creditors and debtors, and hopefully thrash out ways to “facilitate the debt resolution process”. It is an initiative that few experts harbour much hope for.
Buchheit likens the impact of an assertive new player on an already fault-riddled debt restructuring system to someone having a bad cold that a doctor struggles to treat, who is then impaled by a spear. “The cold hasn’t gone away, but the doctor is likely to focus more on the spear,” he says.
Ironically, both Buchheit and Newman — who clashed many times over the years as the leading lawyer for and suer of bankrupt countries — advocate for the same basic approach: countries should restructure the debts they can, remain in default to China, and the IMF should drop its “kumbaya” approach and accept semi-permanent arrears to its biggest shareholders.
But most expect Zambia-like debt limbo to be the likeliest outcome for a lot of countries. “I suspect this is going to be a recurring problem,” says Reinhart. “And the longer these countries are in the [debt] netherworld . . . the [more the] fabric of the country is affected.”
But Debt Management Office (DMO) has dismissed as outright falsehood a report that Nigeria has defaulted on the repayment of the Chinese loans.
In a statement titled “Rebuttal of False Publication by some media houses,” on Wednesday, the DMO assured Nigerians that the Federal Government was committed to its debt obligations and has not defaulted on any of its loan repayments to China.
The statement read: “Nigeria remains unwaveringly committed to fulfilling its debt obligations in a responsible and timely manner.
“The attention of the Debt Management Office (DMO) has been drawn to a publication by some media house claiming that Nigeria has defaulted in debt repayment to China which it claimed penalties stand at N41.21 billion.”
The agency urged Nigerians to disregard the report.
“The public is assured that Nigeria is fully committed to honoring its debt obligations and has not defaulted on any of its debt service obligations, the media report should therefore be disregarded,” it added.
In December 2021, the DMO said Nigeria’s debt to China stood at $4.1 billion as of September in the same year.
The balance is out of a total debt of $6.5 billion available for Nigeria to draw down.
According to the government, Chinese loans are project-tied loans.
The 11 projects undertaken with the loans as of March 31, 2020 are the 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 Modernisation Project (Lagos-Ibadan section), and Rehabilitation and Upgrading of Abuja-Keffi- Makurdi Road Project.
However, according to data from the external loans reports obtained from the Debt Management Office showed that within the period, Nigeria’s borrowings from the five countries rose by 206.96 per cent from $1.58bn in June 2015 to $4.85bn by September 2022.
The five countries are China, France, Japan, India and Germany.
In a related development, Nigeria is expected to repay the newly obtained $800million World Bank in the next d 25 years.
The Federal Government had recently secured $800 million loan from the World Bank to provide palliatives for over 50 million Nigerians after the removal of fuel subsidies.
The money is to be shared to vulnerable persons captured in its National Social Safety Net Programme.
While the move looked generous, a finance document sighted by The Nation revealed that it will take Nigeria 25 years to complete the full repayment.
The document also showed that the financing agreement was a concessional finance and was signed on August 16, 2022, by the Nigerian Finance Minister and the World Bank Country Director for Nigeria, Shubham Chaudhuri.
Concessional loans are called soft loans because they have more generous terms than market loans.
These generally include below-market interest rates, grace periods in which the loan recipient is not required to make debt payments for several years or a combination of low interest rates/grace periods.
Based on the document, the $800m loan obtained by the Federal Government attracts a maximum commitment charge rate of one-half of one per cent per annum on the Unwithdrawn Financing Balance, and a service charge of three-fourths of one per cent per annum on the withdrawn credit balance, according to the document.
It also disclosed that the interest charge is one and a quarter per cent per annum on the withdrawn credit balance.
Also, a percentage of the principal amount of the loan is expected alongside the other charges, and this will increase over time.
While the first payment will be 1.65 percent of the principal amount, the last payment will be 3.40 percent of the principal amount.
Also, the agreement between the federal government and the World Bank has a repayment plan which will be made from 2027 to 2051, twice a year.
The next administration, led by President-Elect Bola Ahmed Tinubu, is expected to begin the repayments for the $800 million loan, when it assumes office.