By Francis Ogwo
The Government of Lagos State has disclosed that is considering the issuance of bond of about N100 billion to fund deficit in its 2021 budget.
The consideration is in its bid to fund the deficit of N192.494 billion in its total budget of N1.164 trillion through a combination of internal and external loans.
This was made public by the Commissioner for Finance, Dr Rabiu Olowo, during the presentation of the Year 2021 Budget Analysis: Facts Behind the Figures.
Olowo emphasized that the state plans to raise N52 billion from external loans and internal loan of about N41 billion while adding that the state closed year 2020 with debt to revenue ratio of 19.8 per cent well below Federal Government’s benchmark of 30 per cent and 40 per cent by the World Bank.
While presenting the budget analysis, the Commissioner for Economic Planning and Budget, Samuel Egube, said the budget was consistent with the T.H.E.M.E.S agenda of Governor Babajide Sanwo-Olu and designed to prioritise the completion of inherited on-going projects across the state.
“The total budget size is N1.164 trillion and will be funded from a total revenue estimate of N971.028 billion, comprising Internally Generated Revenue (IGR) of N723.817 billion; Capital Receipts of N71.811 billion and Federal Transfer of N175.4 billion.
The 2021 Budget, according to Egube, titled “Budget of Rekindled Hope,” has a breakdown of the recurrent expenditure showing Total Personnel Cost (N168.726 billion), Total Overhead Cost (N260.074 billion) and Debt Charges (N31.787 billion).
Speaking further, Egube noted that a significant percentage of the projected IGR of N512 billion was expected to be contributed by the Lagos State Internal Revenue Service (LIRS).
“We shall achieve this by expanding the tax net, by simplifying the tax process, improving our transaction taxes and the appropriate use of technology and improving the work environment, training and tools of our tax administration personnel. This will improve the efficiency in operations of all revenue-generating agencies.
“We believe that there are huge revenue-generating opportunities in the state, including real estates, transportation sector and our markets generally, etc. We will continue to use data and intelligence to unravel revenue opportunities and leakages.
“We have continued to maintain a relatively conservative posture in our projections for federal transfers/receipts compared to our annual run rate in 2020 in view of the production challenges within the oil sector by keeping our expectation at N175 billion.
“The deficit of N192.494 billion is projected to be funded by a combination of internal and external loans,” he said. He noted that the external borrowings would be in naira to hedge against foreign exchange, while internally, the state will issue bonds.
Speaking on 2020 budget, he said: “Following the exigencies of the coronavirus pandemic, we were constrained to reduce the 2020 budget by 21 per cent from N1.169 trillion to N920.5 billion.
“There was 10 per cent reduction in recurrent expenditure and 24 per cent reduction in capital expenditure. The total revenue was revised to N812.47 billion with deficit financing of N108 billion.
“The recurrent and capital expenditures were N413.41 billion and N507.06 billion, respectively, with capital to recurrent ratio of 55:45. While we were recovering from the pandemic, the #EndSARS protests and the aftermath of its hijack took us back economically and socially, further compounding the situation.
“However, attributable to our resilient nature, as at third week of December 2020, our total revenue performed 93 per cent, while our total capital expenditure and recurrent expenditure performed at 80 per cent and 86 per cent respectively.
“Our existing internal loans were restructured from an interest rate of 20 per cent to 12 per cent and single digit interest rates in some cases, resulting in a cost savings of about N12 billion.”
The meeting was attended by other members of the Lagos State Economic Management Team including Commissioner for Information and Strategy, Gbenga Omotoso; Commissioner for Health, Prof. Akin Abayomi; Commissioner for Transportation, Dr. Frederic Oladeinde; Commissioner for Education, Folashade Adefisayo, and Special Adviser to the Governor on Works and Infrastructure, Aramide Adeyoyez, among others.
Note that the bonds issuance plan by the Lagos State Government has a provision in form of ‘The Bonds Law’ and provides for the creation of the CDSA by the Lagos State Government, into which a minimum of 15% of the State’s Internally Generated Revenue (IGR) will be deposited on a monthly basis.
The Irrevocable Standing Payment Order (ISPO) will become effective immediately upon the issuance of the Series III Bond.