Former Deputy governor of Central Bank of Nigeria, Prof. Kingsley Moghalu, has disclosed that the terms of the loans obtained by President Muhammadu Buhari’s administration from China were shrouded in secrecy
The YPP Presidential candidate in the 2019 election in a video conference organised by Elombah Television anchored in UK also lamented that the contractual interests of the loan for Nigeria’s rail project is high compared to other countries that obtained similar loan from China.
Moghalu also complained about the cost of servicing the Chinese loans and the quantum of revenue being used to service the country’s loan in general.
He said that when the Chinese approves these loans from the Chinese Export Bank, a Chinese company will execute the contract, constructed by Chinese workers, and built with materials imported from China.
“So the real problem is that when you borrow from China, it is really the Chinese economy that you are servicing, you are subsidising Chinese exports because there is no transparency in this loan, everything will come from China, the supplies, the company that will construct the project , workers and that is the problem.
“This is a means of promoting Chinese export. You say they are lending you money, but you must pay back that money and at the same time provide so much additional benefits to the Chinese economy.
“The contract cost in Nigeria is so high when you compare it with say, Ethiopia that also borrowed from China, and the question is, why?”
Moghalu said with the borrowings from China by numerous African countries, China has been able to establish its sphere of influence in Africa.
He said, “Over the last 20 years or so, China is a rising world power, it is looking to establish sphere of influential in a number of continents. Asia very close to his border, Africa and in Latin America, especially these three part of the world and as it is today, China is the second biggest economy in the world after United States.
“So, it is a rising power and every rising power, one of the indices of power in International relations is the number of states that owe their allegiance to you for one reason or the other it could be ideological or commercial ties.
“China has made Africa a sphere of influences through loans, trade and aid, and so it is in that context that we have look at the relationship between Africa and China.
“The issue of abused spouse is what led Africa to embrace China because African countries were frustrated with their relationship with the western world, and China is offering them support unconditionally, not asking questions about human rights violation, just business to business and a lot of African leaders embraced that transactional approach to things.
“China also sweetened this approach to make people see that they are brothers against the west.”
He added, “$3.1bn China loan is ten percent of our foreign loan. They are concessional loan. On face value, it looks attractive. 2.5% annual interest payable over 20 years, and 7 years moratorium.
“If you look at this kind of loan, on the surface it looks good, but when you go deeper there are many problems.
“The number one problem is Nigeria indebtedness to China, Nigeria essentially walking into sovereign debt crisis when you consider that we now spend virtually all that we earn servicing foreign debt.
“In the 1st quarter one of 2020, that is the period of January to March, the Federal government total retained revenue was about N959 billion, it spent N943 billion serving external debt that is about 99 percent, and so out of every N1 the Federal government earns, 99 kobo is spent servicing debt.
“We. are taking more and more of this loan and we were told by the Debt Management Office that it is all okay. Our debt to GDP ratio is under control, it is below 30 percent and that does not matter. What matters to a country like Nigeria is the debt service to GDP ratio, what is your debt service revenue ratio. What portion of your revenue are your spending to service debt? That is what matters and not the debt service ratio to GDP.
“Oil is basically our main source of revenue, when you look at foreign currency of the revenue, 90 percent is from crude oil sales. So, when those revenue are plunging, then that is a huge risk but your debt obligations are fixed .
“So, if there is serious mismatch between what you are earning and what you are using to service debt then you have a crisis. That is the problem with this loan from China.
Speaking about issue of Sovereignty clause in the loan, Moghalu said, “It is not unusual language in the context of international debt. It is the language of transaction because the Chinese needed to find a way of getting their money back in case we default, anybody that is lending money must have its way of getting its money back.
“What has happened in this context is that if there is a problem in paying back the loan, they go to arbitration, you don’t know what the arbitral Tribunal will award China, it is more of language of transaction, it is part of risk exposure.
Excessive foreign borrowing
“The real problem is not about the borrowing. In some countries like Zambia, Sri Lanka, the Chinese seized their national assets to get back its money.
“Africans think about short term solutions to their problems, ‘it is when we solved this problem we will be in good shape with masses’, we don’t care about, we just want to create an illusion that we are fixing our problems.”
Speaking on whether the country can afford more loans, Moghalu said, “I don’t think we can afford to take more loans, but it is governance failure that has to make government think that it has to take more loans.
“I am not condemning borrowing totally there are times a nation has to borrow. The question is what you do with what you borrow and the terms and transparency of those terms, I don’t think we should continue to borrow, we should cut our coat according to size, we keep borrowing because we don’t want to take hard decisions.
“We want to continue to maintain a bloated governance cost and bloated civil service and so many things. What happen if we cut the size of public service?
“You know this is the problem and some of these loans that have been borrowed are for budget deficit purpose not even for infrastructure, even the ones for infrastructure, what is the cost analysis?
“Are there no other ways for financing construction of rail, roads based on Public Private Partnership arrangement if you can make a location that is on economics viable.
Talking about how to finance infrastructures, He said the government should shift more toward Private Public Partnership (PPP) and use your revenue to construct projects in rural areas.
He added that another decision needed to be taken requires political wills, and that is to cut the cost of governance in the country.
In his words, “Another decision is a decision that requires political will, we have to cut the cost of governance because if you are spending over 90 percent of every revenue you are earning servicing debt, you are bankrupt, but your postponing your bankruptcy.
“We are transferring to future generation loads that we are not sure how they will be able to carry. We do not have a productive economy apart from oil to earn foreign exchange. Distributing money to States and Local governments, from federal government is an indication that we are not running a federal system of government, but a Unitary system, so there is urgent need for proper restructuring. We need constitutional restructuring, without restructuring, we don’t have a future.”
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