Why China Won’t Write Off Debt for Nigeria, Other Sub-Saharan Countries
After years of defaults and debt write-offs by several multilateral and bilateral institutions, China, Africa’s now largest bilateral creditor, entered Africa’s loan market with a unique model that will ensure African nations do not get away with procured loans even if their leaders squandered it.
In early 2000, President Xi Jinping announced an African Infrastructure loan project to support and open up the African economy. A vision most African leaders keyed into because of its seemingly easy process and approval when compared to the process and scrutiny involved in securing loans from the likes of World Bank, the International Monetary Fund and other top financial institutions.
However, underneath the quick response and fast approval is a complex model that ensures these African nations are indebted to China, even in certain situations like COVID-19.
To avoid unnecessary requests for debt write-offs, defaults, and reliefs, the Chinese government had limited its African loans to infrastructural projects executed by Chinese owned companies and in most cases with Chinese labour.
Deborah Brautigam, Head of the China Africa Research Initiative at JHU’s School of Advanced International Studies, put loans made by the Chinese government to African nations between 2000 and 2018 at about $152 billion.
“The Chinese have always done their lending on the idea that individual projects contribute to structural transformation and economic development,” said Deborah Brautigam, who heads the China Africa Research Initiative at JHU’s School of Advanced International Studies. The thinking is, “those projects might be good projects and viable projects to get countries to a new stage where they might be in a position to repay the loans,” she said.
However, while the World Bank and other global financial institutions may offer debt reliefs and total write off in certain situations like the world is currently experiencing with COVID-19, China is unlikely to write off any debt given the fact that those infrastructural projects are expected to get yield results in future as the economy expands.
Also, the loans are visible projects either under construction or completed, therefore, China may offer moratorium and reduce interest rates but not write off loans as experienced in April during calls for debt relief. China was the last to join and has turned down a similar request by the International Monetary Fund to write off part of the debt owed by the Republic of Congo in 2019.
NNPC To Resume Oil Exploration In Sokoto Basin
The Nigerian National Petroleum Corporation on Thursday announced plans to resume active oil exploration in Sokoto Basin.
A statement issued in Abuja on Thursday by NNPC spokesperson, Kennie Obateru, said the corporation’s Group Managing Director, Mele Kyari, said exploration for crude would resume in the Sokoto Basin.
The statement read in part, “Kyari also hinted of plans for the corporation to resume active exploration activities in the Sokoto Basin.”
The NNPC boss disclosed this while receiving the Governor of Kebbi State, Atiku Bagudu, who paid Kyari a courtesy visit in his office on Thursday.
In October 2019, the President, Major General Muhammadu Buhari (retd.), had during the spud-in ceremony of Kolmani River II Well on the Upper Benue Trough, Gongola Basin, in the North-East, said the government would explore for oil and gas in the frontier basins across the country.
He outlined the basins to include the Benue Trough, Chad Basin, Sokoto and Bida Basins.
Buhari had also stated that attention would be given to the Dahomey and Anambra Basins which had already witnessed oil and gas discoveries.
Kyari restated NNPC’s commitment to the partnership with Kebbi State for the production of biofuels, describing the project as viable and in tandem with the global transition to renewable energy.
He said the rice production programme in the state was a definite boost to the biofuels project.
Kyari said the linkage of the agricultural sector with the energy sector would facilitate economic growth and bring prosperity to the citizens.
He was quoted as saying, “We will go ahead and renew the Memorandum of Understanding and bring in any necessary amendment that is required to make this business run faster.”
The Kebbi State governor expressed appreciation to the NNPC for its cooperation on the biofuel project.
Bagudu said the cassava programme was well on course but the same could not be said of the sugarcane programme as the targeted milestone was yet to be attained.
Kebbi state is one of the states that the NNPC is in partnership with for the development of renewable energy.
Nigeria To Benefit As G-20 Approves Extension Of Debt Relief Till December
Finance ministers of G-20 countries have approved an extension of debt relief for the world’s poorest nations till December 2021.
David Malpass, World Bank president, made the announcement at the virtual spring meeting, on Wednesday.
TheCable had earlier reported that the G-20 countries will meet this week to consider an extension of the debt freeze.
The G-20, is a group of finance ministers and central bank governors from 19 of the world’s largest economies, including those of many developing nations, along with the European Union.
G-20 countries had established a debt service suspension initiative (DSSI) which took effect in May 2020.
Nigeria had benefited from the initiative which delivered about $5 billion in relief to more than 40 eligible countries.
The suspension period which was originally set to end on December 31, 2020 was extended to June 2021.
Malpass said the extension to December 2021 will boost economic recovery and promote job creation in low income countries.
He urged countries to be transparent in their approach to the debt service payment extension.
“On debt, we welcome a decision by the G20 to extend the DSSI through 2021. The World Bank is also working closely with the IMF to support the implementation of the G20 Common Framework,” he said.
“In both these debt efforts, greater transparency is an important element: I urge all G20 countries to disclose the terms of their financing contracts, including rescheduling, and to support the World Bank’s efforts to reconcile borrower’s debt data more fully with that of creditors.
“Participation by commercial creditors and fuller participation by official bilateral creditors will be vital. I urge all G20 countries to instruct and create incentives for all their public bilateral creditors to participate in debt relief efforts, including national policy banks. I also urge G20 countries to act decisively to incentivize the private creditors under their jurisdiction to participate fully in sovereign debt relief efforts for low-income countries.
“Debt relief efforts are providing some welcome fiscal space, but IDA countries need major new resources too, including grants and highly concessional resources. From April to December 2020, the first DSSI period, our net transfers to IDA and LDC countries were close to $17 billion, of which $5.8 billion were on grant terms.
“Our new commitments were almost $30 billion, making IDA19 the single largest source of concessional resources for the poorest countries and the key multilateral platform for support. To recover from COVID, much more is needed, and we welcome the G20’s support for advancing IDA20 by one year.”
IMF / Fiscal Monitor Report April 2021 Forecast
Unprecedented fiscal support by governments during the pandemic has prevented more severe economic contractions and larger job losses, but risks remain of long-term scarring the International Monetary Fund says in its Fiscal Monitor report released on Wednesday (April 7) in Washington, DC.
Meanwhile, such support, along with drops in revenues, has raised government deficits and debt to unprecedented levels across all country income groups, said Vitor Gaspar, Director of the Fiscal Affairs Department at the IMF.
“The first lesson one year into COVID-19 is that fiscal policy can act timely and decisively. The fiscal policy response was unprecedented in speed and size looking across countries. We also learned that countries with easier access to finance or stronger buffers were able to give more fiscal support. They’re also projected to recover faster,” said Gaspar.
Average overall deficits as a share of GDP in 2020 reached 11.7 percent for advanced economies, 9.8 percent for emerging market economies, and 5.5 percent for low-income developing countries. Countries’ ability to scale up spending has diverged.
“So, what have we learned? We’ve learned that fiscal policy is powerful and that sound public finances are crucial in order to enable that power to be used to the fullest,” stressed Gaspar.
Gaspar urged policy makers to balance the risks from large and growing public and private debt with the risks from premature withdrawal of fiscal support, which could slow the recovery.
“In the spring 2021, we emphasize differentiation across countries. Moreover, COVID-19 is fast evolving, as are the consequences from COVID-19. The fiscal policy must stay agile and flexible to respond to this fast-evolving situation.” Said Gaspar.
He also warned that the targeting of measures must be improved and tailored to countries’ administrative capacity so that fiscal support can be maintained for the duration of the crisis—considering an uncertain and uneven recovery
“Moreover, countries are very different in their structures, in their institutions, in their financial capacity and much else. Therefore, policies and policy advice have to be tailored to fit.” Said Gaspar
Gaspar concluded his remarks by emphasizing that global vaccination is urgently needed, and that global inoculation would pay for itself with stronger employment and economic activity, leading to increased tax revenues and sizable savings in fiscal support.
“A fair shot, a vaccination for everybody in the world may well be the highest return global investment ever. But the Fiscal Monitor also emphasizes the importance of giving a fair shot at life success for everyone. It documents that preexisting inequalities made COVID-19 worse and that COVID-19 in turn made inequalities worse. There is here a vicious cycle that threatens trust and social cohesion. Therefore, we recommend stronger redistributive policies and universal access to basic public services like health, education, and social security,” said Gaspar.
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