By Ignatius Okorocha
The Federal Government on Tuesday explained that it decided to approach the China-Exim bank for a $17 bn loan request when other lending institutions like the World Bank and the African Development Bank were not showing much interest in its case.
The Minister of Finance, Zainab Ahmed, disclosed this in the Senate while defending the decision of President Muhammadu Buhari to borrow $29.96bn loan in order to fund critical infrastructure across the country.
She explained that the 8th National Assembly had approved about $6bn for the Federal Government out of the $29.96bn loan leaving a balance of $22.8bn.
Accordingly,Ahmed told the Senate Committee on Local and Foreign loans that the Federal Government and some state governments are jointly requesting the loans from various lending institutions.
She said the bulk of the loan, which is about $ 17bn, would come from the China-Exim bank while others are from lending institutions like the Islamic Development Bank, among others.
The Minister further explained that the country had no issue with its current debt profile but with its dwindling revenue which could not fund the various projects that are expected to have meaningful impact in the lives of Nigerians.
She said, “The funds would be channeled to the funding of infrastructure which will enhance the productivity of our economy. Other projects are in the heath care, education. It also included projects for the rehabilitation of the North East geopolitical zone.
” Others are the Mambila Hydro Power project ($4.9bn), Lagos-Kano modernisation project $4.1bn), Development Finance project loan being provided by a consortium of World Bank and African Development Bank agencies ($1.28bn).
“The facilities will support the setting up of the Development Bank of Nigeria through some development finance institutions in Nigeria to provide funds for small and medium size enterprises.
“This will make access to finance to SMEs easier, help them to grow and help more Nigerians to come out of poverty line.
“Above all, the loan would help us to improve our electricity supply, reduce poverty, create jobs, ensure access to finance, agricultural productivity, guarantee food security, achieve high school enrolment, provision of clean potable water, rehabilitation of major roads and development of the mining industry.
On why the country is seeking 70 per cent of the foreign loan from China, the minister said, “it is meant to make funds available to our own development institutions so that they can give out loans because access to finance has been difficult for the SMEs.”
On the Debt profile of the country, the minister said, “ The 2016 – 2018 external borrowing plan is both for the Federal Government and the states. So, some states would be responsible for the payment of some of the loans.
On the sustainability of the nation’s debt portfolio, the Minister said, Nigeria current portfolio ceiling as set by the fiscal Responsibility Act is 25 per cent of total debt to GDP. The radio for December 2018 is 19.09 per cent but it reduced to 18.9 per cent by the middle of 2019.
The debt service to revenue ratio is however high and it provides us strong justification for us to drive our revenue. For 2017, the ratio was 5 7 per cent and 51 per cent in 2018.
Our debt level is low compared to other countries. For instance, the USA, United Kingdom and Canada has debt rate to GDP ratio of 105 per cent while their debt to revenue service is 12.5 per cent.
The Chief of Staff to the Kaduna State Governor, Mohammed Abdullahi, while defending its $305m loan request, said, “The loan is specifically designed to fund Capital projects with socio-economic impact on Kaduna State and its residents in line with the State Development Plan.
“This is reflected from the budgetary provisions, where 22.13% is allocated to the Ministry of Works, Housing and transport; 12.57% is allocated to the Ministry of Education, Science and Technology; 8.71% is allocated to the ministry of rural and community development; 8.36% is allocated to the Kaduna Geographical Information Service (KADGIS); while the rest is distributed amongst other MDAs.
On the Kaduna State Debt sustainable and whether it can it repay, he said, “Based on the economic indices, Kaduna state can comfortably repay the loan.
The state average monthly FAAC allocation for the preceding twelve months is N3.295bn, while our current monthly debt service is N467.12Mn. Also, the monthly debt service forecast on the FGN Budget support facility of N 4.169bn with a moratorium of 18 months and World Bank Loan of $350m ith a moratorium of 10 years are N191.767mn and N98.843mn respectively.
If the state was to repay all loans today, the total monthly debts service would be N757.735mn representing 23% of total deductions as a percentage of total allocations. This is less than the threshold for sub-national borrowing which is capped at 40%. in view of this, Kaduna State is within the sustainable debt level.
The representative of the Katsina State Government said the state planned to source $100m out of the $110m from the Islamic Development Bank. He said the state would enjoy between 20 to 50 per cent grants and that projects to be executed would cover the entire local government areas of the state. He also said that the loan was interest free.
Also the representative of the Kogi State Government who is also the Commissioner for Finance, Budget and Budget planning Mr. Ashiru Idris, said the $100m that the state was requesting for would be used to develop infrastructure in order to encourage investors and diversity the economy.
The FCT minister, Mohammed Bello, also explained that the $470m being requested for would be used to provide and rail projects
Meanwhile the ministers for Work, Babatunde Fashola; Minister of State for Transportation, Gbemisola Saraki; and Minister of Information and Culture, Lai Mohammed, also gave explanations on the importance of the projects that would be funded with the loan