A stalemate with China is causing a delay in rail projects that the Muhammadu Buhari administration sees as a major part of the infrastructure development agenda, the minister said earlier this month in Abuja.
“We were waiting on the Chinese to give us the loans we applied for and till today, they’ve not replied. They kept delaying us – will the delay extend our tenure? The answer is no,” Amaechi said.
He added that Nigeria is now seeking loans from Europe and is in talks with Standard Chartered Bank, which has “approved some level of funding.”
Analysts see Nigeria’s debt burden as a reason for China’s hesitation. Data from the Nigerian Debt Management Office show Africa’s biggest crude producer’s debt to China reaching $4.1bn as of September 2021. The loans, according to the debt agency, are tied to infrastructure projects such as road, rail, power, communication and agriculture. Chinese officials did not respond to a request for comment.
Ability to pay
Debt to China increased as Nigeria sought to diversify its portfolio towards cheaper loans. The nation’s lawmakers have questioned such borrowing after an investigation in 2020 by a house of representatives panel found that Nigeria’s sovereignty was compromised in a loan agreement.
Joachim MacEbong, senior analyst at SBM Intelligence in Lagos, says China’s questioning of Nigeria’s ability to pay back loans is a reason for its caution:
- “Nigeria’s debt service for example currently takes up all of the federal government’s revenues, and revenue mobilisation is a serious problem. My conjecture is that the Chinese wanted some guarantees like perhaps putting the revenues from the rail line in an escrow as a guarantee against default, but the government declined the terms.”
- “Since 2000, African countries have gotten what amounts to a lending bonanza from China. Chinese loans make up 20% of development aid to Africa, but now the issue is that many African countries are struggling to meet up with their debt repayment.”
- “As a result, the conditions of the loans being approved these days are much tighter. And if the country in question does not like the terms, the deal doesn’t happen.”
Revenue, not debt, problem
Nigeria’s finance minister Zainab Ahmed says Nigeria does not have a debt problem, but a revenue problem, arguing that debt of about 23% of GDP puts the country among the lowest of its peers. Still, the IMF has expressed concern over the prospect of Nigeria’s debt to GDP ratio rising to 42% by 2026, from 35.7% in 2021.
The IMF’s projections see debt service taking up nearly 100% of government revenue in 2022, with a consolidated government revenue-to-GDP ratio of 7.5% among the lowest in the world. The IMF says that Nigeria’s debt-to-revenue ratio will rise to as much as 92.6% in 2022 from 85.5% in 2021, with the fiscal deficit widening to 5.9% of GDP in 2021, versus 4.3% in 2020 and a projected 4.5% in 2021.
The IMF sees Nigeria’s debt service as a share of federal government revenue exceeding 100% by 2024, the monetary body’s Mission Chief for Nigeria, Jesmin Rahman, said at a virtual press briefing on 10 February. This situation leaves Nigeria vulnerable to shocks, she added. “If you are spending all of your revenues for debt service, you don’t have money to spend on other things.”
Nigeria’s debt-to-GDP ratio is concerning, Ari Aisen, the agency’s resident representative, said at the virtual conference. “Things are not an emergency at the moment, but they are serious and need to be paid attention to. I think the team is very clear about the trends not being favourable,” he said.
Despite the recovery in oil prices, the government’s fiscal deficit is expected to widen further on “implicit fuel subsidies and higher security spending,” says the IMF. The organisation recommends Nigeria scraps fuel subsidy payments and raises VAT.
China’s reluctance to lend shows that Nigeria’s debt sustainability may be approaching its limits.
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