On Lagos debt profile

A recent information from the Debt Management Office reveals that Lagos state’s external debt profile stands at N160 billion. Prior to this disclosure, Lagos state government has never kept the public in the dark about its debt status. Also, the Federal Government, FG, was aware of the state’s decision to take the bond and approved of it.

Statutorily, no state in the country can obtain external loans from multilateral agencies without the approval of the FG. Securities and Exchange Commission is one of the FG’s regulatory agencies which any state must pass through before any external loan could be approved. The import of this is that the Lagos debt satisfies all national and international criteria before it was granted. 

Also, it is important to stress that borrowing does not in any way indicate that the economy of the state is weak. Neither does it mean that the state has over-borrowed.  It is on record that the economy of the state had recorded exponential growth over the years and had been consistently rated high by international rating agencies. At the moment, Lagos enjoys a similar BB Minus-Stable with a positive outlook rating with the Federal Republic of Nigeria. It is the only state in the country that has the rating.

  It is against this background that we consider criticisms that the state was over borrowing myopic. Unlike what obtains in other places, the debts incurred by the state government were judiciously used to fund infrastructure projects and meet the needs of its growing economy.

Considering the sheer size of the Lagos economy, a debt outline of N160 billion, expended on infrastructure upgrading, is by no means outrageous. Presently, in Africa, besides Nigeria, South Africa, Egypt and one other country, Lagos remains the fifth largest economy in the continent. The enormity of the responsibility on the shoulder of the state government is one which Internally Generated Revenue, IGR, and current monthly subvention from Abuja could not sustain. 

Perhaps more importantly, the state has been promptly servicing its debts, thereby enjoying the confidence of the World Bank and other creditors. The strategies put in place by the state government to ensure repayment of the loan in due period is quite impressive considering the consistency with which the state has been meeting its obligations to its creditors over the years. The first tranche of the initial bond that was taken during the first term of the Fashola administration has been paid, while the second tranche will be due by either 2016 or 2017. It is noteworthy that provisions being made for repayment are in excess of what is needed.

Globally, internal and external borrowings enable governments to have alternative options to fund economic development, growth and poverty reduction. From the Lagos experience, it is imperative to emphasise that satisfied the state government has been able to keep debt costs and risks as low and sustainable as possible in the short and long-term

In Africa, foreign aid or development assistance is often regarded as being too much, or wasted by recipient governments on corruption and other unfruitful ventures. But in the case of Lagos, this cannot be said to be the case. As a testimony to the judicious use of borrowed funds, infrastructure upgrading and development have been visible across the state in the last fourteen years. There is hardly any sector that has not benefitted from such rapid infrastructure renewal.  Presently, the ambitious Lagos Badagry expressway redevelopment incorporating BRT and light rail, on- going blue and red light rails from Orile to Marina,   the Mile 12-Ikorodu road expansion and numerous other infrastructure upgrading projects are at various stages of completion in the state. 

Fortunately, the State is endowed with a responsible leadership that has remained irrevocably committed to judicious use of resources, in an accountable and transparent manner in public spending with greater focus on capital expenditure. It is worth noting that the state is one of the few in the country that records a yearly net recurrent surplus average of 49.87% which goes to fund capital expenditure. Thus, all borrowings by the State are deployed to complement the net recurrent surplus in funding critical infrastructure renewal and development. Over the last five years, yearly capital expenditure to recurrent spending ratio had averaged 59:41

In recent time, the state government has changed the paradigm not only in budgeting but in its implementation in the country. The state has not only effectively monitored budget implementation; it has consistently delivered a budget performance in excess of 70%. It has been the policy of the state government to embark on quarterly budget review. Repeated monitoring, critical examination and diligent application of the process have impacted positively on budget performance in the state. The idea of quarterly budget assessment speaks volume of the pro-activeness of the state government as it affords it a scientific basis of measuring   its performance in a consistent manner while putting pressure on government departments and agencies to meet budgetary targets.

 From all indications, with the availability of the required financial resources, the state government would accomplish its objective of taking Lagos to the next level.  Over the years, it has demonstrated enough capacity to implement projects.  Ironically, however, the successes of the state have created economic problems for her as reflected in the number of people coming into the state to benefit from what it has to offer. It is quite similar to the case of Nigerians travelling abroad in quest for the proverbial greener pasture.

On a final note, debt, on its own, is not intrinsically bad. It is a two-edged sword: when controlled, moderated and judiciously used, debt leads to growth. The reality is that the infrastructural need of Lagos State runs into Trillions of Naira. To this end, it is imperative for a state like Lagos to leverage on borrowings to fund its various projects.  Achieving developmental democracy demands effective public financial management that is imbued with transparency and accountability measures to achieve strategic outcomes. In actual sense, resources are scarce and access uneven.

  The greater challenge, therefore, is the task of creating the political will to enshrine good governance coupled with the problem of grappling with the dynamics of resource management, including effective revenue generation and efficient allocation of public funds as well as shrewd utilization of same. It is in this respect that the Lagos State Government has fared better.

Tayo Ogunbiyi