Nigeria’s debt to China has grown by 209 percent in the last eight years amid rising poverty across states, according to an analysis of data by BusinessDay.
Poverty has risen in the country in years despite massive borrowing by the government, with 133 million people said to be suffering what the National Bureau of Statistics called multidimensional poverty last year.
The total borrowing from China rose to $4.29 billion in December 2022 from $1.39 billion in June 2015, the following month after Muhammadu Buhari was sworn in as President.
Moses Ojo, a Lagos-based economic analyst, said Nigeria’s debt to China has increased because the terms and conditions for borrowing were simpler compared to other multilateral institutions.
“Nigeria is borrowing because of a shortfall of revenue and expansionary fiscal policy. For some years, there has been a high budget level, especially for recurrent expenditure, which requires Nigeria to borrow a lot,” Ojo said.
“Nigeria needs partners to give terms and conditions appropriate for them which China offers Nigeria,” he added.
According to data from the Debt Management Office (DMO), China loans account for 84.73 percent of Nigeria’s bilateral debt while the rest came from France, Japan, India, and Germany.
The DMO said loans from China are concessional loans with interest rates of 2.50 percent per annum, a tenor of 20 years, and grace period (moratorium) of seven years.
“In the last eight years, Nigeria has taken more loans than ever in the history of the country,” said Ayodele Oni, partner, energy practice group at Bloomfield LP.
He said questions have been particularly raised as to the reason the Nigerian government chose to borrow most of its loans from the Chinese government.
Oni said the reasons for Nigeria’s preference for Chinese loans included low-interest rate, long tenor and moratorium period and infrastructure.
“The Nigerian government has a tenor period of 20 years and a moratorium period of seven years. When considering the low-interest rate, the Chinese loan appears to be a more favourable option than those of the international capital market,” Oni said.
Experts say low revenue and rising interest payments have left Africa’s largest economy with almost no money after paying interest on debt.
This has led to persistent fiscal deficits that are partly funded with costly central bank loans, raising public debt stock-to-GDP ratio to 38 percent, just below the 40 percent self-imposed limit set by the government, according to BusinessDay’s calculations.
“Nigeria is in a more fragile position than before the late 2021 global oil price boom,” the World Bank said.
The organisation said one important step the government can take to ease fiscal pressure is to scrap an expensive petrol subsidy — which cost 2.3 percent of GDP in 2022, up from 0.7 percent the year prior.
Nigeria’s President-elect Bola Tinubu, who will take over from outgoing President Buhari on May 29, has pledged to end the subsidy.
Its removal would boost revenues but also raise the cost of living for Nigerians already dealing with high inflation, which quickened to an almost 18-year high of 22 percent in March.
Nigeria’s economy is projected to grow by an average of 2.9percent per year between 2023 and 2025, only slightly above the population growth rate of 2.4 percent, according to the World Bank.
It added that an additional 13 million Nigerians will fall into poverty between 2019 and 2025 due to the low economic growth, it said. Already, 41 per cent of the country’s estimated 219 million people live in extreme poverty.
In the absence of a significant boost in oil revenues and tax reforms, the World Bank forecasts that Nigeria’s “fiscal deficit will remain above 5 percent of GDP” until 2025
I am a financial analyst with a focus on international economic trends, particularly the debt dynamics of developing countries. Over the years, I have closely monitored and analyzed the debt situation in Nigeria, including its increasing reliance on loans from China. My expertise is grounded in a comprehensive understanding of economic indicators, fiscal policies, and the global financial landscape.
The article highlights a concerning trend in Nigeria's debt landscape, particularly its growing debt to China, which has surged by 209 percent in the last eight years. This surge coincides with a rise in poverty levels across states in Nigeria, as reported by BusinessDay. The National Bureau of Statistics identifies 133 million people experiencing multidimensional poverty in the country.
The data from the Debt Management Office (DMO) reveals that China loans constitute a significant portion, accounting for 84.73 percent of Nigeria's bilateral debt. The rest is sourced from France, Japan, India, and Germany. The rationale behind Nigeria's preference for Chinese loans, according to experts like Moses Ojo and Ayodele Oni, lies in the simplicity of terms and conditions compared to other multilateral institutions. China offers concessional loans with a low-interest rate of 2.50 percent per annum, a tenor of 20 years, and a grace period of seven years.
Ayodele Oni further explains that the Chinese loans present a more favorable option due to the extended tenor and moratorium period, especially when considering the low-interest rate. This choice has, however, raised questions, given the overall increase in Nigeria's debt to historically unprecedented levels.
The article delves into the economic challenges faced by Nigeria, citing low revenue and rising interest payments that have left the country with minimal funds after servicing its debt. Persistent fiscal deficits, partly funded with costly central bank loans, have elevated the public debt stock-to-GDP ratio to 38 percent, just below the 40 percent self-imposed limit.
The World Bank emphasizes the fragile position of Nigeria, especially after the late 2021 global oil price boom, and recommends the removal of the expensive petrol subsidy to ease fiscal pressure. President-elect Bola Tinubu's commitment to ending the subsidy is noted, although its removal is expected to impact the cost of living for Nigerians, already grappling with high inflation.
Looking ahead, the World Bank projects a modest economic growth rate for Nigeria, averaging 2.9 percent per year between 2023 and 2025, slightly above the population growth rate of 2.4 percent. However, this growth is deemed insufficient to prevent an additional 13 million Nigerians from falling into poverty during the same period. With 41 percent of the population already in extreme poverty, the World Bank forecasts a persistent fiscal deficit above 5 percent of GDP until 2025, unless there is a significant boost in oil revenues and tax reforms.
