Debt Management Office has said China is not a major source of funding for the Federal Government.
A clause conceding Nigeria’s sovereignty to China in a loan agreement has continued to generate controversy
The clause, described as “lethal” by a House of Representatives panel, is in article 8(1) of the commercial loan agreement between Nigeria and Export-Import Bank of China.
Minister of Transportation, Rotimi Amaechi, has been accused of signing away Nigeria’s sovereignty in the loan agreement.
But the minister argued that the government obtained the consent of the National Assembly before taking the loans.
DMO in a statement on Wednesday, said both the Executive and Legislative arms of government were involved in the loans obtained from China.
It put the total borrowing by Nigeria from China at $3.121 billion as of March 31, representing 3.94 per cent of the country’s total public debt of $79.303 billion.
DMO said loans from Chinese government accounted for 11.28 percent of Nigeria’s external debt stock of $27.67 billion at the time.
It said interest rate for the Chinese loans stands at 2.5 percent with a tenor of 20 years and a grace period of seven years.
DMO statement read, “The attention of the Debt Management Office (DMO), has been drawn to statements and reports credited to several persons on the subject of loans obtained from China and has considered it necessary to provide a sequel to its Press Release on the same subject dated September 11, 2018.
“In addition, the low interest rate (2.5 percent) reduces the Interest Cost to Government while the long tenor enables the repayment of the principal sum of the Loans over many years. These two benefits, make the provisions for Debt Service in the Annual Budget lower than they would otherwise have been if the Loans were on commercial terms.”
DMO stated that the Chinese loans were tied to projects implemented in the country and identified some of such projects to include the Nigerian railway modernization project (Idu-Kaduna section), Abuja light rail project, Nigerian four airport terminals expansion project, among others.
“The projects also have the added benefits of job creation, not only by themselves but through direct and indirect service providers, a number of which are Small and Medium Enterprises,” it added.
DMO added that loans were taken after President Muhammadu Buhari had obtained approval from the National Assembly.
It also said the legal implication of agreements were reviewed by officers of the Federal Ministry of Justice and the office of the Attorney General of the Federal.
The statement further said, “To summarise, the Federal Ministry of Finance, Budget and National Planning works with the MDAs under whose portfolio a proposed loan falls and also with the DMO. Thereafter, the approval of the Federal Executive Council (FEC) is sought. It is only after the approval by FEC that His Excellency requests for the approval of the National Assembly (NASS) as required by Section 41 of the Fiscal responsibility Act, 2007.
“More importantly, it is only after the approval of NASS that the Loans are taken and Nigeria begins to drawdown on the loans. In summary, Borrowing is a joint activity between the Executive (FEC) and the Legislative (NASS) Arms of Government.
“The Loan Agreements are reviewed by legal officers of the Federal Ministry of Justice and the Legal Opinion of the Honourable Attorney General of the Federation and Minister of Justice is obtained before any External Loan Agreement is signed.
“Nigeria explicitly provides for Debt Service on its External and Domestic Debt in its Annual Budgets. In effect, this means that Debt Service is recognised and payment is planned for. In addition, a number of the projects being (and to be) financed by the Loans are either revenue generating or have the potential to generate revenue.”