Lagos State Government recently announced a proposal to revise the state’s 2020 budget and plans to restart its economy post Covid-19, which has been presented to the House of Assembly for consideration.
The lockdown as being witnessed in Nigeria started much earlier in places like China and Europe where factories, shops, school and other businesses were shut down. Nigeria is an import-dependent country; its manufacturing sector immediately began to slow down because the supply chain was slowing down.
Another impact of Covid-19 was a slowdown in movement around the world with the attendant sharp drop in demand and prices for crude oil.
Overall, the combined effect of all of these was that the Nigerian economy slowed down. Nigeria’s Gross Domestic Product (GDP) grew by 1.87percent (year-on-year) in real terms in Q1 2020, according to the first quarter (Q1) GDP report, released by the National Bureau of Statistics (NBS) on Monday.
International Monetary Fund (IMF) had predicted a negative growth of -3.4 per cent for Nigeria in 2020, due to COVID-19 pandemic.
Before the outbreak of Covid-19 pandemic, the Lagos State Governor, Babajide Sanwo-Olu, on December 31, 2019 signed the 2020 Appropriation Bill of N1.168 trillion into law.
However, the size of the State’s budget is going to change largely due to external pressures that have now become internal pressure, arising from the coronavirus pandemic.
“There is really nothing that would change in our broad objective. It is just that certain aspect of it has now been heightened. For example, the actions that we would be taking on health, are same actions. It is just that now; we must accelerate it because we did not think of COVID-19 when the budget was being planned,” Sam Egube, Lagos State Commissioner for Economic Planning and Budget, said.
In its first quarter review, things still looked quite firm and despite the challenges; somehow, Lagos was still able to come out with a positive variance on its revenue – about six per cent more than our target. The State achieved 106 per cent of the expected outcome on its revenue. Its recurrent expenditure was at 80 per cent target, but its capital expenditure which has to do with projects largely was at 41 per cent of expectation. That was so largely because the first quarter was a little bit slower.
“Even though we expected a capital to recurrent expenditure of 61:39, what we saw was 44:56. And because we had the monies waiting to meet those projects, we had a surplus of N119 billion instead of our planned deficit of N24 billion,” Egube said.
However, to move forward, three things were clear to the State. Firstly, it needed to maintain a very strong pandemic response. Secondly, it needed to restart the Lagos State economy and thirdly, it needed to re-imagine the way Lagos State operates.
“So, there is going to be a shift and we are proposing to the state House of Assembly, a reduction in our budget from N1.168 trillion, to N920 billion, which is a 21 per cent drop,” he said.
On how this will affect Lagosians, he said, “The GDP is what affects us a lot in Lagos. When you look at the correlation between GDP and unemployment, you are then able to put your finger on how GDP affects unemployment. Generally, the income distribution of Lagos is about N46,000 per average for about six million people that are working. That begins to tell you how revenue would be impacted. And once you do the analysis you will see that federal transfer is going to be impacted by about 30 per cent. But that is 18 per cent of our source of revenue. We would lose another five per cent of the capital receipt and that is because a portion of that capital receipt has to do with things we already have in our hands. When you blend all of this together, what you find is that the real effect on our revenue is 24 per cent drop and a 21.2 per cent drop on the expenditure side”.
To cut personnel budget means to sack people but the Commissioner made it clear that the State doesn’t intend to sack anybody. “This is not the time to sack people, but the time to intervene with people. So, you have to keep people on their jobs. Even if you send them away, you will still need to be sending palliatives to them wherever they are. So, we didn’t touch our personnel cost. Overhead is to come down by 20 per cent”.
In re-imagining the way Lagos State would operate going forward; one of the response for the State is on food supply looking at things around food production. The State is also going to look at how to take care of the vulnerable.
“Now, in restarting the economy we feel the focus should be on job creation,” Egube said. Jobs stimulate consumption and consumption is what makes production possible. There are sectors that are heavy in terms of job creation, such as SMEs. Construction is also strong and it has several characteristics. It can employ people and provide a platform for tomorrow’s growth. He said he State would be looking a lot at agriculture to support and retrain its people. “Let’s face it, the way people work would change and so we all need skills that would help us work in the new environment that COVID-19 has created”.
On other sectors of priorities, he said, “there are a few things that are going to be important going forward. We are aggressive in our health response. We felt we needed to support business and the idea was to use the Lagos State Employment Trust Fund (LSETF) to do some support. But in the meantime we are going to allow filing extension so that people would not be under pressure in filing their taxes and then working capital for SMEs. But going forward, we need to take a very strong approach to the crisis and we need to restart the state economy. So, our safety commission is doing a lot of work to try and codify what living with COVID-19 in the workplace should look like. Lagos is a service centre and the things that make Lagos bubble are our hotels, our bars, night clubs, restaurants. Now, if that sector is challenged globally, then you are looking at a challenge in the economy”.
Furthermore, he said “when you go through a shock, you tell yourself that you won’t let it happen again. So, one of the things we are doing in the proposed budget is to create a Stabilisation Fund of one per cent of our internally generated revenue, that would help us cope with shocks as we go on and hopefully we would have legislation around how this Fund can be assessed. So, in this proposal that is going to the House of Assembly, there is a line for the Stabilisation Fund that is required”.
Responding to issues on IGR expectation, amid businesses facing challenges because of the COVID-19, the commissioner said, “First understand that where this economy was going was 1 trillion and we have now said 250 billion may not come, so we have moderated it downwards. But we did not wake up and just moderate it; we did a lot of analysis. We have information coming from the federal government regularly as to how things will go. We have access to analyst across the world, tell us where crude is likely to be and ranges of what prices will be. We have expert traders who sit and tell us their forecast for crude. We have estimated what consumption will go to and I will try to explain to you the counter balancing of consumption as it concern exchange rate also. So the fact that exchange rate is going down means, what one dollar is now is more naira. Even though consumption comes down it means VAT should have gone down. But exchange rate went up meaning the naira consumption, will counter balance it. That is why we are seeing only a 5percent net decline in that area. But there are also declines around your PPT taxes and all of those other things. So, when we played this into our model we felt they rang of drop on revenue will be between 21percent and 31percent. Now we also then went into LRS to see what they have done from January to March and we see that they were not over turned. You can see from our first quarter report that we are ahead of budget as for March”.