Nigeria looks to Europe for rail loans as talks with China stall


A stalemate with China is causing a delay in railway projects which the Muhammadu Buhari administration sees as an important part of the infrastructure development program, the minister said earlier this month in Abuja.

“We were waiting for the Chinese to grant us the loans we requested and until today they have not responded. They kept delaying us – will the delay prolong our term? The answer is no,” Amaechi said.

He added that Nigeria is now seeking loans from Europe and is in talks with Standard Chartered Bankwhich has “approved a certain level of funding”.

Analysts see Nigeria debt burden as the reason for China’s hesitation. Data from Nigeria’s debt management office shows that Africa’s largest crude producer’s debt to China reached $4.1 billion in September 2021. The loans, according to the debt agency, are linked to infrastructure projects such as roads, railways, electricity, communications and agriculture. Chinese officials did not respond to a request for comment.

The ability to pay

Debt to China rose as Nigeria sought to diversify its portfolio into cheaper loans. The country’s lawmakers questioned the borrowing after a 2020 investigation by a House of Representatives panel found Nigeria’s sovereignty was compromised in a loan deal.

Joachim MacEbong, senior analyst at SBM Intelligence in Lagos, explains that China’s questioning of Nigeria’s ability to repay its loans is one reason for its caution:

  • “Nigeria’s debt service, for example, is currently eating up all federal government revenue, and revenue mobilization is a serious problem. My guess is that the Chinese wanted guarantees like maybe putting the revenue from the rail line in escrow as security against default, but the government refused the terms.
  • “Since 2000, African countries have received what amounts to a windfall of loans from China. Chinese loans account for 20% of development aid to Africa, but now the problem is that many African countries are struggling to meet their debt repayments.
  • “As a result, the terms of loans approved these days are much stricter. And if the country in question does not like the conditions, the agreement does not take place.

Income, not debt, problem

Minister of Finance of Nigeria Zainab Ahmed says Nigeria does not have a debt problem, but an income problem, arguing that debt of around 23% of GDP puts the country among the lowest of its peers. Still, the IMF has expressed concern over the prospect of Nigeria’s debt-to-GDP ratio rising to 42% by 2026 from 35.7% in 2021.

IMF projections predict that debt service will account for nearly 100% of government revenue in 2022, with a consolidated government revenue-to-GDP ratio of 7.5% among the lowest in the world. The IMF indicates that Nigeria’s debt-to-revenue ratio will rise from 85.5% in 2021 to 92.6% in 2022, with the budget deficit increasing to 5.9% of GDP in 2021 from 4.3% in 2020 and a forecast of 4.5%. in 2021.

The IMF sees Nigeria debt service as a proportion of federal government revenue above 100% by 2024, said the monetary body’s chief of mission for Nigeria, Jesmin Rahman, during a virtual press briefing on February 10. This situation makes Nigeria vulnerable to shocks, she added. “If you spend all your income on debt servicing, you have no money to spend on anything else.”

Nigeria’s debt-to-GDP ratio is worrying, Ari Aise, the agency’s resident representative, said during the virtual conference. “Things are not an emergency at the moment, but they are serious and must be taken into account. I think the team is very clear that the trends are not favorable,” he said.

Despite the recovery in oil prices, the government’s budget deficit is expected to widen further due to “implicit fuel subsidies and increased security spending”, the IMF says. The organization recommends that Nigeria remove fuel subsidies and increase VAT.


China’s reluctance to lend shows that Nigeria’s debt sustainability may be approaching its limits.


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