Nigeria’s borrowing from China triples to $4bn under Buhari

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