No Chinese money, no problem, says DMO

The Debt Management Office (DMO) indicated on Thursday that Nigeria may not need to worry over China’s decision to cut its lending to Africa.

The world’s second-largest economy had last year indicated that over the next three years, it would cut the headline amount of money it supplies to Africa by a third to $40 billion, with more emphasis on SMEs, green projects and private investment flows rather than large infrastructures.

Chinese banks currently make up about one-fifth of the total lending to Africa, concentrated in few strategic/resource-rich countries, including Nigeria, Angola, Djibouti, Ethiopia, Kenya, Zambia and Uganda.

“If China doesn’t give us money, what happens? The first part is that we are diversifying our sources of funding so we’re not dependent on just one source, whether in the external borrowing or domestic,” Patience Oniha, director general of DMO, said in Abuja on Thursday while reacting to a concern raised during a press briefing.

She said, “The second thing really is to say that the debt from China is probably about $3.6 trillion, and is just about 10 percent of our external debt; when you compare to the total debt, that’s probably at about three percent.

“Therefore, what I’m saying is: we like them, we can see the airports, we can see the rail, but really, they’re not the major source of our funding.”

Nigeria’s public debt stock rose to N39.556 trillion or $95.779 billion as at December 31, 2021.
The total debt, which includes both external and domestic debts of the Federal Government, the 36 state governments and the Federal Capital Territory (FCT), is N6.64 trillion higher than the N32.915 trillion or $86.392 billion on December 31, 2020.

Oniha said the new borrowings by the Federal Government and the subnationals accounted for the increase in the public debt stock.

The Federal Government’s 2021 Appropriation and Supplementary Acts included total new borrowings (from domestic and external sources) of N5.489 trillion to finance the deficit.

“Borrowings for this purpose and disbursements by multilateral and bilateral creditors account for a significant portion of the increase in the debt stock. Increases were also recorded in the debt stock of the states and the FCT,” Oniha said.

The new borrowings were raised from diverse sources, primarily through the issuances of Eurobonds, Sovereign Sukuk and FGN Bonds, which were utilised to finance capital projects and support economic recovery.

The total debt stock also pushed public debt-to-GDP to 22.47 percent, 21.61 percent in 2020, but still remains within Nigeria’s self-imposed limit of 40 percent, and the World Bank/IMF recommended limit of 55 percent for countries within Nigeria’s peer group and 70 percent for ECOWAS countries.

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However, debt service-to-revenue ratio remains a concern, especially as the government has seen its incomes dwindle, coupled with the significant drain from fuel subsidies.

According to Oniha, causes of the rising debt include huge infrastructure deficit, double recessions that the country has had to face, consecutive budget deficits, and low revenue base, compounded by the dependence on one source – crude oil.

The World Bank had ranked Nigeria as 194th in terms of revenue-to-GDP ratio out of 196 countries in 2020, only ahead of Yemen and Somalia.

“The Federal Government is mindful of the relatively high debt-to-revenue ratio and has initiated various measures to increase revenues through the Strategic Revenue Growth Initiative and the introduction of Finance Acts since 2019,” Oniha said.

According to her, the DMO Initiatives to drive debt sustainability include deploying World Bank/IMF management tools, spreading maturities in public debt portfolio, deploying a wide range of instruments, as well as ensuring project-tied financing alternatives.

Oniha believes that plans by the Chinese government to cut back on African lending amid rising debt profile should not be a cause for concern.

She said, “We are still in discussions with them as we speak on a continuous basis. But generally, in fact, for some of those things that you read in their report, they came to my office and gave us their plan for Africa for lending to Africa.

“So, they are pretty focused about what they’re doing. China has moved up significantly, planning their lending for which countries and all of that they’re getting sophisticated like the advanced countries.”

The DMO DG indicated that on the back of rising crude oil prices, the additional borrowing required to fund the extra deficit created by this year’s subsidy payment could surpass the N1trillion already provided in the proposed amendment to the 2022 Appropriation Act which President Muhammadu Buhari sent to the National Assembly.

Oniha said, “In the amendment to the 2022 Appropriation Act which the government has sent to the National Assembly provided for an incremental borrowing of N1 trillion; these are all still working progress.

“But I think that with what has even happened with crude oil price, and the effect it will have on refined petroleum products, there may be some work to do,” Oniha told BusinessDay.

“But again, using the figure submitted by Mr President to the National Assembly, for instance, that figure goes from N5.4 trillion to about N6.3 trillion million, meaning an increase of one trillion naira, but it is still the same structure of sourcing the funds from both the external and domestic.”