Here's Why China Will Not Forgive Nigeria, Other African Countries' Debt

Weeks after President Muhammadu Buhari called on bilateral and multilateral creditors to cancel the debt owed due to the impact of coronavirus on the economy in Africa, it has been revealed that China will not cancel or forgive the debt owed by Nigeria and other African countries.

The COVID-19 outbreak which started in Wuhan, China, has had an adverse effect on the global economy, with the International Monetary Fund (IMF) stating that Nigeria's economy will experience the worse this year and Fitch Ratings downgrading Nigeria's economic growth. The COVID-19 outbreak had made loan even more necessary for countries like Nigeria.

How much is Africa and Nigeria owing China?

The economic fallout of the coronavirus had pushed for the call that local and international bilateral and multilateral creditors offer debt relief for African countries. While China is considering the debt relief request, the Asian country will not be willing to cancel the $152 billion debt African countries owed it.

China is the largest bilateral creditor in Africa, having started to focus on the continent from 2000 till 2018. China also accounts for 10% of Nigeria's $27.6 billion external debt stock. Nigeria owes China about $3.1 billion  Recall that the Minister of Finance, Zainab Ahmed, had stated in February that due to the lack of interest from the World Bank and the African Development Bank’s (AfDB) to offer Nigeria loan during the recession, the Federal Government approached China for a $17 billion loans.

Nigeria had sought the $17 billion loan from China in order to balance its loan of $29.96 billion which was still around $22.8 billion at the time.

Why China won't cancel the debt

While reacting to the likely position of China, the Head, China Africa Research Initiative at Johns Hopkins University, Deborah Brautigam, told Bloomberg that China will not forgive the debt but the Asian country will be willing to delay due date for payment, “The good news is that China is typically willing to negotiate payment extensions. Usually, it’s not that difficult to lengthen the payment period or lengthen the maturity of loans. China has backed the G-20 plan, although it hasn’t participated in previous global debt relief initiatives. All told, according to IIF data, China’s outstanding debt claims reached $5.5 trillion last year,” she added.

Explaining the reason for China's debt relief choice, Brautigam said China believes that every loan is for structural transformation and economic development which will better position these countries and enable them to repay their debts. "The Chinese have always done their lending on the idea that individual projects contribute to structural transformation and economic development. Those projects might be good projects and viable projects to get countries to a new stage where they might be in a position to repay the loans," he explained. 

China is in line with IMF, World Bank

The Managing Director of IMF, Kristalina Georgieva, had said in an AllNews report that the IMF and the World Bank are campaigning for a debt standstill, preventing the need for African countries to service their debt, stating that if a country's economy is standstill - as it has been under lockdown due to COVID-19 - then debt servicing should also be paused.