Debt: Nigeria Reveals Plan To Prevent China From Taking Over Infrastructures

Weeks after AllNews reported that Nigeria is at risk of losing key infrastructures to China if it hits a debt default on repayment to the Asian country, the Debt Management Office (DMO) has revealed that Nigeria has a plan for debt payment and disclosed the actually amount Nigeria owes to China.

While clarifying that China isn't the major source of credit for Nigeria, DMO said China only accounts for 3.94% of Nigeria’s total public debt of $79.303 as at March 31, 2020. According to statement from the office, the total value of loans Nigeria has obtained from China as at March 31, 2020 is $3.121 billion.

This means China accounts for 11.28% of the external debt stock of $27.67 billion. And the Chinese loans are concessionary, as the Asian country offered Nigeria more generous terms than market rate loans. This resulted in a interest rates of 2.5% per annum, tenor of 20 years and a moratorium of 7 years.

How Does The Loans/Terms Affect Nigeria

The concessionary loans affords the Nigerian government pay back the loan at a low interest rate for a long term, rather than repay the loan at a high rate within a short or long term - this reduces the budget for debt service.

Recall that AllNews had reported that for every N1 made by Nigeria, 96kobo is used to repay loan, according to the Director of Centre for Infrastructure Policy Regulation and Advancement (CIPRA), Lagos Business School, Dr Bongo Adi. This situation places Nigeria's debt service at a dilemma.

With revenue declining amidst coronavirus, Nigeria can't afford to default on Chinese debt - even though China is considering debt freeze - as the country is known for tying infrastructure to collateral in case of debt default. There is a term called, Chinese Chopstick Imperialism, which represents China's decision to tie the loan to infrastructure.

The Asian country has been reported of using financial support like loans to take over the infrastructure of countries, especially the developing countries. Sri Lankan lost its Magampura Mahinda Rajapaksa Port which was funded with a loan from Exim Bank of China after it defaulted.

Zambia and Rwanda are on the verge of losing state electricity company ZESCO and Port of Mombasa respectively, due to their inability to repay their debt. The countries are reportedly in talks on the debt situation. But DMO says Nigeria has made provision for the debt service of External and Domestic Debt in its Annual Budgets and the infrastructures built from the loans generate revenue.

The Infrastructures Built From The Chinese Loans

The $3.121 billion was spent on eleven projects; 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).

Part of the project includes Rehabilitation and Upgrading of Abuja-Keffi- Makurdi Road Project. These projects will play a role in the repayment of the Chinese debt.