Lagos State commissioner for finance, Akinyemi Ashade, has provided reasons why the state government did not approach the capital market in 2018 to raise fund via its N500 billion debt issuance programme.
Ashade, who discussed the financial strategies that underpinned the Governor Akinwunmi Ambode administration in the last four years in an exclusive interview with BusinessDay, said the government was cautious because it was a year preceding general elections.
According to Ashade, although the state’s 2018 budget of N1.04 trillion made provision for debt financing, as always, to fund the infrastructural renewal programme of the administration, the financial strategies adopted by the government in relation to the Internally Generated Revenue (IGR) of the state also pointed to the need to slow down borrowing.
The Ambode administration launched a N500 billion debt issuance programme in December 2016 to be drawn in tranches with 10-year moratorium. Of the N500 billion, the outgoing government accessed about N144.4 billion. This, Ashade believes, leaves room for a new administration in the state to borrow.
Giving more insight, the finance commissioner, who is of the view that Lagos has the potential for loan-to-GDP ratio of up to 10 percent as against 2 percent currently, said in an election year, the market was cautious.
“It was an election year; the market was a bit cautious and we were also cautious. It was also tied to our revenue reform. I can argue that our total loan to GDP is still less than 2 percent. People will say our GDP is high, but GDP does not pay loan; it is the revenue you generate that pays loan,” Ashade said.
“As a fiscally responsible state, we had set a benchmark for ourselves, that we cannot use more than 30 percent of our revenue to service debt. So as you near hitting the benchmark, you have to slow down,” he said.
Ashade further explained that the financial strategies informed the administration’s decision to get into the revenue reform space so as to up its capacity for borrowing “if the $50 billion infrastructure gap must be bridged”.
“If you generate more revenue you will have that capacity to borrow,” he said.
Ashade put the average IGR of Nigeria’s biggest state economy at between N30 and N34 billion, but observed it could climb much higher with continued reforms, widening of the tax net and deployment of technology to block loopholes and enhance tax collection.
JOSHUA BASSEY
