Opinion: Can Nigeria Default On Its Chinese Debt?, By Nasiru Aminu
Despite the global crisis, Nigeria is in a position to continue to borrow. As long as Nigeria does not borrow to pay its debt, the country will be classified as solvent. The country can afford to pay a low-interest rate on new loans…
The recent public outcry started following the 2020 revised budget because debt servicing will take about 27 per cent of the total allocation. The country’s revenue, not the gross domestic product, is stretched by debt servicing, which is not favourable.
Despite the global crisis, Nigeria is in a position to continue to borrow. As long as Nigeria does not borrow to pay its debt, the country will be classified as solvent. The country can afford to pay a low-interest rate on new loans as a result of lower global interest rates. Nigeria can currently borrow money for over 10 years at a concessionary rate, making it relatively easy to service. Egypt recently borrowed at a 2 per cent interest rate from China.
Finally, I will answer pessimists on a supposed scenario in which the country eventually defaults on its debt payments. Unlike a corporation or household, a currency-issuing nation cannot be insolvent. That is because Nigeria controls its currency. If Nigeria owes debts and lacks the revenue to pay them, the Central Bank can be asked to print money to pay-off the debt. Of course, it is not the best approach, because it can lead to an undesirable scenario of hyperinflation.
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