DMO dispels fears over Chinese loans

Nigeria’s Debt Management Office (DMO)
has given the assurance the the probability of default in repayment of
loans does not arise.

 

He spoke do douse growing concern over the surge in loans taken from China by Nigeria.

 

DMO dismissed insinuations of possible
takeover of the economy by China in case of failure to repay the
borrowed funds, saying that the possibility of failure did not exist.

 

“The DMO has observed that there have been various comments in recent times about borrowing by developing countries from China.

 

The DMO has therefore considered it necessary to inform Nigerians about the government’s borrowing from China,” it said.

 

The agency explained that loans from
China was in order to take advantage of a cheaper source of finance and
to diversify the sources of borrowed funds.

 

 “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), Germany (KfW), Japan
(Japan International Cooperation Agency), India
(India Development Bank) and China (China Export-Import Bank).

 

“These loans from multilateral and
bilateral lenders are typically used to finance specific capital
projects across the country. The International Capital Market is another
source of capital.”

 

 “One of the reasons why
Nigeria will 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.

 

“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 DMO assured that Nigeria’s public
debt was being managed under statutory provisions and international best
practices, adding that there was 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, the DMO said.

 

According to the DMO, all the
government’s borrowing in both 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 its assets.

 

It added that loans from China Exim
constituted just one of the sources of multilateral and bilateral loans
accessed by Nigeria and represented only about 8.5 per cent of the
country’s external debt as of June 30, 2018.