The Debt Management Office (DMO) has sought to clarify issues and state the facts about China’s loans to Nigeria, following various statements and reports credited to several persons on the subject, so as to guide members of the public properly.
The DMO states that the total value of loans taken by Nigeria from China as at March 31, 2020, was $3.121 billion. This represents only about 3.94% of Nigeria’s total public debt of $79.303 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 $27.67 at the same date.
This shows that China is not a major source of funding for the Nigerian Government.
Terms of the Loans from China: The afore-mentioned loans are concessionary loans, with interest rates of 2.5% per annum, tenor of 20 years, and a moratorium of 7 years. The terms and other details of the loans are available at the DMO website.
The 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 of 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 ordinarily have been if the loans were on commercial terms.
What the loans were used for: The $3.121 Chinese loans are project-tied loans. Some of these 11 projects as at March 31, 2020, are 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.
As stated by the DMO, 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.
How 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.
In summary, the Federal Ministry of Finance, Budget and National Planning works with 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 after the approval of FEC that the President sends the request to the National Assembly for approval, as required by Section 41 of the Fiscal Responsibility Act 2007. It is only after the approval of the National Assembly that the loans are taken and Nigeria begins to drawdown on the loans.
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Rigorous Documentation: The loan agreements are reviewed by legal officers of the Federal Ministry of Justice and the legal opinion of the Attorney General of the Federation and Minister for 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?
In order to douse that fear, the DMO points out that Nigeria explicitly provides for Debt Service on its External and Domestic Debt in its Annual Budgets. This means that debt service is recognized 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.
Governors to meet on Wednesday over rising insecurity
The governors of the 36 States of the federation will hold an emergency virtual meeting to discuss growing insecurity in the country.
The Nigerian Governors Forum (NGF) has announced that the Governors of the 36 States will hold an emergency virtual meeting to discuss the recent killings and kidnappings by terrorist groups, and agree on a new national security plan to secure the lives of citizens.
This was disclosed in a statement by Head, Media and Public Affairs of the NGF, Mr Abdulrazaque Bello-Barkindo, on Monday in Abuja.
The NGF disclosed in its statement that the Governors would also receive updates on the events following the disbandment of the SARS alongside the rising insecurity.
Other issues that will be discussed by the Governors include:
- CACOVID funding palliatives and updates across the states.
- Joint meetings between the CBN and Kaduna State Governor, Nasir el-Rufai, on accessing pension funds to finance infrastructure development.
- Updates on the ASUU strike. Issues related to Stamp Duty and the Water Resources Bill will also be discussed at the meeting.
What you should know
There has been a rise in reported cases of kidnappings and killings by terrorists groups and bandits, especially in Northern Nigeria.
Nairametrics reported earlier that President Muhammadu Buhari had condemned the killing of farmers by Boko Haram on Saturday. The President added that the Federal Government had given the armed forces support to tackle insecurity in the country.
Emefiele tells economists to stop “overdramatizing” analysis that can create Panic
CBN has assured that the nation’s economy will emerge out of recession in the first quarter of 2021.
The Central Bank of Nigeria (CBN) has assured that the nation’s economy will grow by 2% in 2021. The apex bank is optimistic that its various intervention will make Nigeria emerge out of recession in the first quarter of 2021.
This was disclosed by the Governor, CBN, Godwin Emefiele while delivering his keynote address at the 55th Annual Bankers Dinner of the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos on Friday.
What he is saying
He said, “We expect that growth in 2021 would attain 2.0 percent. It is important to insulate the economy from shocks that may undermine the attainment of the projected 2.0 percent economic growth.
“However, downside risks remain, as restoration of full economic activities, particularly in service-related sectors, remains uncertain until a COVID vaccine is produced and made available to millions of people across the world.
“Second, with the significant rise in cases in advanced markets and the imposition of lockdowns in parts of Europe, concerns remain on the impact this could have on growth in advanced economies, commodity prices and the financial markets.”
He emphasized on the need to find ways to insulate the economy from the impact of these shocks through diversification efforts, while also working to ensure that the nation adheres to safety protocols in order to prevent a surge in COVID-19 related cases, as this could further cripple economic activities.
Stop overdramatizing analysis
Emefiele appealed to economic analysts to stay clear from analysis that can create panic and thus hamper the economic recovery process. “When you overdramatized you create panic in the system and that slows down the process of recovery.
“Our actions in 2021 would be guided by the considerations that emerged from the Monetary Policy Committee meeting of November 23 & 24, 2020, which sought to address the major headwinds exerting downward pressure on output growth and upward pressure on domestic prices,” he added.
Mr. Emefiele has often accused “armchair” economists of making exaggerated comments when expressing their views on the economy.
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55th Annual Bankers Dinner https://t.co/WROvaYq8Cg
— Central Bank of Nigeria (@cenbank) November 27, 2020
What you need to know
On November 23, 2020, Nairametrics reported that the Minister for Finance, Budget and National Planning, Mrs. Zainab Ahmed, said the country will exit recession by the first quarter of 2021 as the government is working towards reversing the declining economic trend in the country.
- The Finance Minister said the COVID-19-induced recession followed the pattern across the world, where many countries had entered an economic recession.
Nigeria edges closer to getting World Bank loan, in the final stages of talk
The Finance Minister has disclosed that Nigeria has fulfilled the conditions and is in the last stages of securing a World Bank loan.
Nigeria is set to achieve its plans of getting the $1.5 billion World Bank loan package as it is in the closing stages of the deal following its fulfilment of the conditions set by the international multilateral organization.
This disclosure was made by the Minister for Finance, Budget and National Planning, Zainab Ahmed, during an interview on Friday, November 27, 2020, with Bloomberg Television.
While pointing out that Nigeria’s senate approved the borrowing plan from the World Bank in June, Ahmed said the board of the multilateral institution will discuss the loan package at their next meeting.
What you should know
It can be recalled that the World Bank loan which had been sought by Nigeria in the wake of the devastating impact of the coronavirus pandemic, was being delayed by the Brettonwood institution due to concerns over reforms as it feels that Nigeria has not shown enough commitment towards achieving them.
Some of the reforms include the unification and flexibility of the exchange rate, removal of fuel subsidy, increase in electricity tariffs amongst others.
However, it seems that with the recent deregulation of the downstream sector of the oil industry with the attendant removal of fuel subsidy and increase in electricity tariff, some of those concerns of the World Bank are gradually being sorted out.
Ahmed also said that Nigeria is considering joining the G-20 debt-relief initiative and is talking to commercial lenders to secure their backing.
She said, “We will consider joining as long as it is safe for us to do so. Nigeria couldn’t participate initially because some of the conditions were unfavourable for existing loan commitments with bilateral lenders and other international borrowings.”
On the increased gap between the official rate and parallel market rate, the minister said the government is concerned about the widening gap in the naira’s exchange rate on the official and parallel markets.
She said, “We have been taking measures to close the gap. We hope to get to an even level very soon so the impact of the exchange rate will become moderated.”