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Analysts wary of infrastructure loan from China

03 December 2015, 14:40Okoro Chinedu

Lagos - The loan Nigeria is almost certain to secure from China for the refurbishment of infrastructure is welcome but could exacerbate the former’s debt load.

This is the view of a financial markets think-tank ahead of the China/Africa Cooperation (FOCAC) scheduled for South Africa from Friday.

It has been reported President Muhammadu Buhari and his Chinese counterpart, Xi Jinping, would meet to discuss the possibility of China funding major infrastructure projects that have been stalled by inadequate funding.

China has expressed interest in funding several projects including a coastal railway project linking Lagos with Calabar.

Rand Bank Merchant Bank (RMB) warned of the consequence of the loan.

“The upshot is that the loan agreement would increase Nigeria’s debt burden. Although the state has the capacity to borrow externally, it runs the risk of breaching the ceiling on its debt service to revenue ratio.”

Nigeria's total internal and external debt stock stood at N12,06 trillion ( $63,5 billion) as of the beginning of the year.

However, the firm said such requests for loans were justified.

Also Read: China envisaged to fund stalled Nigeria projects

“The president’s appeal for funds to his Chinese counterpart for development spending reflects Nigeria’s current fiscal quandary — declining revenues and bloated recurrent expenses have crowded out capital expenditure,” RMB said in its international markets update on Thursday.

The firm said the need for infrastructure finance in Nigeria was unquestionable with road, rail and power networks are in severe decline, inhibiting long-term sustainable growth.

FBN Capital meanwhile said when compared to its West African peers, Nigeria's infrastructure networks compare favourably.

“However, the condition of its transport network is poor. This has impaired national connectivity,” said an FBN Capital analyst.

He pointed out the Government recently revealed plans to set up a US$25 billion infrastructure fund to bridge the funding gap in infrastructure development.

The infrastructure gap is wide with the most significant gaps seen in power, housing and broadband penetration.

“While the FG's plans are laudable, the $25 billion figure is a fraction of the $100 billion deficit estimate according industry sources,” said the analyst.

- CAJ News

Tags china

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