A recent report has caused concern by alleging that Nigeria has defaulted on repaying Chinese loans and now faces a risk of paying a penalty of N41.31 billion. The report which cited the Debt Management Office (DMO) as reference revealed that Nigeria has failed to service its debt of N110.31 billion to China, an amount that is said to have accrued over the course of the last two years. China’s debt stock comprised principal and interest. From January 2021 through December 2022, interest and principal fees were reported to total N41.3 billion ($92.1 million) and N69 billion ($153.85 million), respectively.
The debts, as stated in the report, were incurred after the completion of the Nigeria Railway Modernization Project (Idu-Kaduna Section), the Nigeria Railway Modernization Project (Lagos-Ibadan Section), and the Nigeria Abuja Light Rail Project. A response from the DMO was published on its website, where it deemed the report “false” and urges the general public to disregard it. It also affirmed that “Nigeria has not defaulted on any of its debt services obligation”. According to DMO Director-General Patience Oniha, making interest and principal payments on time is an ongoing process that constitutes “debt service.”
It was highly unlikely for Nigeria to default on loan servicing.
She elaborated in a prior interview on how Nigeria has been running a budget deficit for decades and financing it almost entirely through borrowing, leading to a rising debt stock. She argued that it was highly unlikely for Nigeria to default on loan servicing because the government had taken the appropriate steps to ensure that different debt instruments mature at different times. There is also a strategy in place and the Minister of Finance, Budget, and National Planning and the Governor of the Central Bank are aware of when debt comes due.
Furthermore, Oniha encourages Nigerians not to be alarmed or startled by the government’s decision to borrow funds to finance development projects. She claims that the government’s need to borrow and subsequent repayment strategies were laid out in detail in the Economic Recovery and Growth Plan (ERGP). This is largely responsible for our timely recovery from the recession. China, being Nigeria’s largest creditor, the Federal Government borrowing from China has so far increased from $1.58 billion in June 2015 to $5.07 billion in December 2022, with total public debt reaching N46.25 trillion by the end of the same year.
Nigeria’s debt burden consumes more than 80% of its annual revenue.
There is a growing panic that Nigeria would default on its massive and growing debt to China. According to Zainab Ahmed, Nigeria’s Minister of Finance, Budget, and National Planning, the country is “suffocating” under its current debt burden, which consumes more than 80% of annual revenues. She said the administration is aiming to bring it down to 60% this year. Oniha voiced alarm over Nigeria’s mounting debt even though she had no doubts about the country’s ability to repay, despite the fact that the debt to GDP ratio was 23% rather than the 40% projected by the government.
In addition, she expressed discontentment at the current level of revenue, saying that it must increase by a factor of percent. Remarking on the debt issue, Taiwo Oyedele, PwC’s Fiscal Policy Partner and Africa Tax Leader, indicated that inefficient government expenditure and unclear priorities are major factors contributing to the rising debt. Oyedele stated that Nigeria frequently spends on white elephant projects instead of focusing on fundamental infrastructure and human capital development. He pointed out that even when the projects are necessary, they are generally over budget and take too long to complete, resulting in higher expenses and less public value.
Government should have given many projects to the private sector.
While Eze Onyekpere, the Lead Director of the Centre for Social Justice (CSJ), also shared his thoughts, he emphasized the problem of revenue leakages, where money that should be going to the treasury is being diverted somewhere else. He said the government should have given many projects to the private sector citing the railway construction as an example. As he put it “It’s the same as if the government built a road and people bought buses, he explained; the government could establish the lines, but it wouldn’t have to operate the waggon”.