By Adekoya Mayokun
The International Monetary Fund (IMF) has warned the federal government of Nigeria to limit its borrowing from the Central Bank of Nigeria (CBN).
The IMF issued this in a statement released at the end of its staff visit to Nigeria. Ms. Jesmin Rahman, who led the visit urged the Nigerian government to keep reliance on Central Bank overdrafts for deficit financing within legal limits.
TOS News reported that Nigeria’s main opposition party, the People’s Democratic Party (PDP) Governors Forum on Monday after a meeting in Uyo, Akwa Ibom State, strongly criticized the rising debt profile of the country.
The forum said at least 80%t of the budget was spent on servicing debts.
However, the All Progressives Congress (APC) on Tuesday had explained borrowings by the Federal Government, arguing that the loans were invested in the development of essential infrastructures across the country.
The International Monetary Fund also said moratorium should be extended for bank debtors who have strong pre-crisis fundamentals.
It also commended the steps taken by the Central Bank of Nigeria in managing monetary issues.
“It remains to be seen what share of forborne loans may turn non-performing as the impact of the pandemic abates. Since NPLs often rise at the later part of economic crisis, CBN’s strong oversight remains critical to safeguarding financial sector stability,” IMF stated.
Data obtained from the Debt Management Office on Monday showed that the Buhari-led administration has borrowed $2.02bn as loans from China in six years.
The statistics from the DMO revealed that Nigeria’s total debt from China as of June 30, 2015 stood at $1.38bn. On March 31, the country’s debt portfolio from China had risen to $3.40bn.
According to the DMO, loans from China are concessional loans with interest rates of 2.50% per annum, a tenor of 20 years and grace period of seven years. The debt office noted that the terms of the loans were in compliance with the provisions of Section 41 (1a) of the Fiscal Responsibility Act, 2007.
The loans borrowed from China were used for projects which include the Nigerian Railway Modernization Project (Idu-Kaduna section), the Abuja Light Rail Project, Nigerian Four Airport Terminals Expansion Project (Abuja, Kano, Lagos and Port Harcourt), Nigerian Railway Modernization Project (Lagos-Ibadan section) and the Rehabilitation and Upgrading of Abuja-Keffi-Makurdi Road Project.
The DMO said the low interest rates on the loans reduced the interest cost to government while the long tenor enabled the repayment of the principal sum of the loans over many years.
However, as of March 31, a total of $719.61m had been made as debt service payment to China since the third quarter of 2015.
Out of the amount paid as debt service, 46.15% ($332.03m) was paid to service the interest on the loans.
In the first quarter of 2021, $102.19m was used to service debt to China. This is about 11% of the total $1.0bn used to service external debts within the period.
The DMO recently disclosed that Nigeria had more than $5.83bn foreign loans that had been approved but not yet disbursed as of December 31, 2020.
Out of this amount, $1.25bn is supposed to come from the Export-Import Bank of China. Apart from multilateral agencies, China has remained the nation’s largest creditor.