DMO: No cause for alarm over Chinese loans
Ndubuisi Francis and Kasim Sumaina in Abuja
The federal government has disclosed that it is currently negotiating a loan of about $6 billion with the China Exim Bank for the construction of the Ibadan-Kano rail line project.
This is coming as the Debt Management Office (DMO) has allayed fears over Nigeria’s continuing borrowing from China, assuring that the country’s public debt is being managed under statutory provisions and international best practice.
The Minister of Transportation, Mr. Chibuike Rotimi Amaechi, gave the hint during an interactive session with journalists in Abuja yesterday.
According to him, “We are currently in negotiations with the China Exim Bank to get about $6 billion to do (rail lines) from Ibadan to Kano.”
Meanwhile, the Debt Management Office (DMO) has allayed fears over Nigeria’s continuing borrowing from China, assuring that the country’s public debt is being managed under statutory provisions and international best practice.
The agency assured the public that Nigeria’s public debt remains sustainable, and devoid of any risk of default because of the country’s sound debt management practices.
In a statement, the DMO said it has observed various comments in recent times about borrowing by developing countries from China.
The comments, it said, seem to have become heightened following the recent summit of the Forum on China-Africa Cooperation and claims of potential seizure of national assets by Chinese lenders in some African countries although the claims have not been validated.
“The DMO has therefore considered it necessary to inform Nigerians about the Government’s borrowing from China. Firstly, it should be noted that based on need, and subject to the receipt of requisite approvals, the government may raise capital from several domestic and external sources to finance capital projects, in order to promote economic growth and development, as well as, job creation.
“Regarding external borrowing, the Nigerian Government accesses capital from several sources – multilaterals, such as the World Bank and the African Development Bank, as well as, bilateral loans from various countries such as France (through the Agence Francaise de Development -AFD), Germany (KfW), Japan (Japan International Cooperation Agency – JICA), India (India Development Bank) and China (China Export-Import Bank – EXIM),” it said.
According to the DMO, these loans from multilateral and bilateral lenders are typically used to finance specific capital projects across the country, adding that The international capital market is another source of capital.
“One of the reasons why Nigeria would raise capital from multilateral and bilateral sources is because they are concessional which means that they are cheaper in terms of costs, and more convenient to service because they are usually of long tenors with grace periods.
“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,” the DMO said.
The agency pointed out that loans from concessional lenders have limits in terms of the amounts that they can provide to each country.
“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. “Borrowing from China Exim is one of such means of ensuring that Nigeria has access to more long-term concessional loans. 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.
“Thus, the possibility of a takeover of assets by a lender does not exist. For the avoidance of doubt, 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,” it said
Borrowing from China, it admonished, 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 per cent of Nigeria’s external debt as at June 30, 2018.
“Nigeria’s oublic debt remains sustainable and there is also no risk of default because of Nigeria’s sound Debt Management practices,” the DMO stated.
Amaechi, noted that it is a difficult decision, adding that the money required is about $8 billion to do a double track but the Chinese are insisting that they can’t fund the double track.
“They are asking us to do a single track and they want it at Minna so that instead of going from Minna to Kaduna, we should go from Minna to Abuja and then join it from Abuja to Kaduna.
“But there are those who argue that we should not accept that; rather, we should tell them (Chinese) to fund it in segments. This, however, does not make economic sense,” Amaechi explained. On the approval for waterways security, the minister stated that $195 million had been approved and expressed confidence that it would help reduce crime in the maritime sector.
He further stated that “the federal government has approved the sum of $195 million to hire an Israeli company to help train our security personnel to help man our water ways.
“Currently, there are criminal activities in our waterways which have made it that in some parts of the country, people charge what they call war insurance. War insurance means that you go to an area where there is (seems to be) war, but you know that there is no war there.
“But in such areas, criminal activities are taking place in the water ways. So with the approval, after we’ve put the processes in place, we will ensure that there is security on our waters.”