FG Explains Why It Is Borrowing From China
Image: Quartz

Nigeria is borrowing from Asian country China to diversify its sources of borrowed funds, the Debt Management Office (DMO) has said.

This was revealed in a statement by the DMO on Tuesday in Abuja where it added that borrowing from China is a cheaper source of raising funds.

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According to the DMO, contrary to fears, the borrowings from the Chinese government will not culminate in the takeover of the Nigerian economy by the Asian nation.

“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,” the statement said.

“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.”

It noted that “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 body gave the assurance that the country’s public debt was being managed under statutory provisions, as it said a takeover of assets by lenders is not possible.