- China paid $195.5 million debt service in 2020
Nigeria which spent princely $1.6 billion or N768 billion on debt servicing in 2020 may further slide down the slope as government plans additional borrowing to enable it service existing loans in the face of dwindling foreign exchange revenue.
New borrowing plan by the government is projected to fall within the acceptable debt-to-GDP ratio and would enable the government optimize the borrowing capacity of the economy and source cheap funds from local and international lenders.
The Debts Management Office (DMO) stated that government has increased Nigeria’s available debt capacity further up the acceptable range from 25% of GDP to 40%.
The DMO said the new debt-to-GDP ratio is still well below the World Bank and IMF’s recommended threshold of 55% for countries in Nigeria’s peer group. It added that the planned borrowing would assist government manage budget deficits inflicted by servicing existing debts.
According to Africa Check, a non-partisan fact-checking organization, more Chinese loans already concluded by the federal government may see the country deepening its debt level with additional $2.3 billion or N1.104 trillion.
The money would be part of the $5.6 billion loan agreements Nigeria reached with China. Some $3.3 billion or N1.584 trillion of the total has been disbursed by China as of March 2020. And servicing the initial tranche of the loan contributed to the nation’s huge debt service obligation.
Performance of the initial Chinese loan disbursement, according to DMO, has been good; leading to leading to marginal reduction in the principal from $3.3 billion to $3.1 billion.
In the following tranches, Nigeria is yet to receive some $1.41 billion of loans signed but yet to be disbursed from the Export-Import Bank of China under a loan deal concluded since 2018. It would remain $890 million to complete disbursement of the concluded loan deals with China.
However, the surge in Chinese loans and their low cost come with multiple concerns about other non-financial economic implications. Most of the loans are tied to projects awarded to Chinese contractors who are expected to be paid from source. Thus, the funds deliver projects in Nigeria with minimum local content, and then flow back to source without spurring growth in the domestic economy.
Thus, while Nigeria pays the cost of borrowing, Chinese firms and products enjoy the patronage. According to the report by Africa Check, Nigeria spent $195.5 million to pay its debt to China in 2020, or about 12.6% of the $1.6 billion it spent servicing all its external debt.
The DMO stated that Nigeria has also borrowed money from France, Japan, India, and Germany under bilateral arrangements.
The most recent official data available from the DMO has it that Nigeria’s public debt was $86.3 billion or N41.424 trillion as of December 2020. Federal government is responsible for $75.3 billion or N36.14 trillion.
Of the total debt stock, federal government is solely responsible for all external debt of $33.3 billion or about N15.984 trillion. It is also responsible for $42 billion or N20.16 trillion of total domestic debt of $53 billion or N25.44 trillion. The rest of domestic debts amounting to $11 billion or N5.28 trillion are owed by the states of the country and the federal capital territory.
According to Africa Check, China leads Nigeria’s bilateral lenders with 80.1 percent; while France, Japan, India, and Germany follow.
Nigeria’s multilateral debts owed mainly the African Development Bank, the World Bank and the International Monetary Fund, according to the report, stood at $17.9 billion.
Head of the DMO, Patience Oniha, has in several statements tried to douse concerns about Nigeria’s worsening debt status. She ssaid that government has good management and payment plans for the loans, explaining that debt servicing has become a regular part of government’s annual budgets.
Some of the projects funded with borrowed funds, she said, could also generate money for servicing the debts and ensure that there is no default on servicing local or international debt.
However, concerns continue to mount over the mono-cultural structure of the Nigerian petroleum dependent economy as energy transition continues to pull demand away from fossil fuels, and revenue from producing nations.
Rapid shift in energy demand patterns, Oracle Intelligence reports, will pull on demand and price of oil and gas; leaving federal and state governments incapable of sustaining long term debt servicing.