Financial debt, which increased by about NGN70bn in 2008-09, amounted to NGN124bn at end 2009, if netted from about NGN12bn of provisions into the debt reserve fund, and remains likely to rise to NGN350bn by 2012, eventually surging close to 100% of the state's annual operating revenue. The debt coverage ratio could therefore worsen to about three years of the current balance over the medium term, from an average one year in 2005-2009, while the debt service coverage ratio should remain around 2x the operating surplus.

The Elephant in the Room – Lagos State’s Exploding Debt

The worrisome part of this development phase of Lagos State is the debt the state is incurring via bonds.  This is a potential source of problems in the future.

Specifically, there have been two large debt tranches taken by Governors Bola Tinubu and Babatunde Fashola.  The first 5-year bond was for ₦50 billion and was taken in 2008.  The most recent bond issue was another ₦50 billion, completed in April 2010.

This effectively makes Lagos one of the most indebted states in the country, with combined bond issues of ₦100 billion.  The plan for Lagos calls for another ₦175 billion to be borrowed, to finance all the various projects proposed for the city.
Using our rough calculations, this means that every month, the Lagos state government has to pay bondholders ₦2.3 billion, given that the interest rates on these bond issues is about 13%.  Half of that will be paid for the next 5 years, while the other half has three years to go. ₦26 billion a year is a large amount.

To put this in context, the proposed budget for Lagos State this year is ₦429 billion, so one might insist that within the total budget, ₦26 billion is not a great deal to worry about.

This would be a fallacy. Although Fashola presented an Appropriation Bill of N429.596 billion for the 2010 fiscal year to the state House of Assembly.

The key here is that the Fashola administration expects a total of ₦307 billion in the 2010 fiscal year. Of the total budget value, it is expected that ₦204 billion will be raked in through internally generated revenue (IGR); N78 billion from the Federal Allocation; dedicated revenue estimated at ₦20 billion while the extra-ordinary revenue stands at ₦5 billion.

This leaves a budget shortfall of close to ₦123 billion for the fiscal year. During his presentation, Fashola did not explain how this difference would be made up.

This leads to this paper’s warning on borrowing.  Although the Governor has indicated ₦17 billion will be spent on debt service this year, next year, it will be significantly higher as the new bond kicks in.  If new monies are borrowed i.e., new bonds issued, the number will be higher still.

One suspects that the Governor may see the way to make up the budget as being to issue yet new bonds, but this would only postpone the evil day.  The stark reality is that the Lagos State budget faces serious serious issues.  The city is in deep trouble fiscally and is using unsustainable tactics to avert a financial reckoning.

The Lagos State government will be tempted to issue new bonds in the near-term both to make up the shortfall and to continue its future ‘mega city’ plans.  This is a classic debt trap that will only worsen the longer a real solution is put off.

The only reasonable solution is to reduce State government spending to sustainable levels.  However, we are sure this politically difficult due to the large number of beneficiaries from the spending spree.

However, if Lagos State’s true fiscal crisis is not handled by the current administration, any prospect of a financial soft landing for the State will be pushed farther and farther away.

seanet02:

@felele you are an enemy of progress. So you this poverty development party men are still in nairaland, stop being an antagonist. You are a complete nuisanse. Folks like you should be in zoo not on nairaland, so the internet has become so popular that idiots and morons like you can be using it to fight the progressives, how did you even land on nairaland, i hate silly set of people like you. animal

seanet02:

@kobojunkie i wont start any war here with enemies of progress like you, you are just like that slowpoke. Can you even manage a ward not to talk of a state. Stop being a conservative. We are progressive in YORUBALAND not problematic folks like you. ode buruku

seanet02:
u daft piglet, y not stop staining this thread with ur stinky smellin saliva. I SEE NO REASON Y DUMB SKULLS LIKE U STILL EXIST IN N/L. U LACK COMMON SENsE.
@felele you are an enemy of progress. So you this poverty development party men are still in nairaland, stop being an antagonist. You are a complete nuisanse. Folks like you should be in zoo not on nairaland, so the internet has become so popular that idiots and morons like you can be using it to fight the progressives, how did you even land on nairaland, i hate silly set of people like you. animal

seanet02:
u daft piglet, y not stop staining this thread with ur stinky smellin saliva. I SEE NO REASON Y DUMB SKULLS LIKE U STILL EXIST IN N/L. U LACK COMMON SENsE.
@felele you are an enemy of progress. So you this poverty development party men are still in nairaland, stop being an antagonist. You are a complete nuisanse. Folks like you should be in zoo not on nairaland, so the internet has become so popular that idiots and morons like you can be using it to fight the progressives, how did you even land on nairaland, i hate silly set of people like you. animal

seanet02:
u daft piglet, y not stop staining this thread with ur stinky smellin saliva. I SEE NO REASON Y DUMB SKULLS LIKE U STILL EXIST IN N/L. U LACK COMMON SENsE.
@felele you are an enemy of progress. So you this poverty development party men are still in nairaland, stop being an antagonist. You are a complete nuisanse. Folks like you should be in zoo not on nairaland, so the internet has become so popular that idiots and morons like you can be using it to fight the progressives, how did you even land on nairaland, i hate silly set of people like you. animal

seanet02:
u daft piglet, y not stop staining this thread with ur stinky smellin saliva. I SEE NO REASON Y DUMB SKULLS LIKE U STILL EXIST IN N/L. U LACK COMMON SENsE.
@felele you are an enemy of progress. So you this poverty development party men are still in nairaland, stop being an antagonist. You are a complete nuisanse. Folks like you should be in zoo not on nairaland, so the internet has become so popular that idiots and morons like you can be using it to fight the progressives, how did you even land on nairaland, i hate silly set of people like you. animal

seanet02:
u daft piglet, y not stop staining this thread with ur stinky smellin saliva. I SEE NO REASON Y DUMB SKULLS LIKE U STILL EXIST IN N/L. U LACK COMMON SENsE.
@felele you are an enemy of progress. So you this poverty development party men are still in nairaland, stop being an antagonist. You are a complete nuisanse. Folks like you should be in zoo not on nairaland, so the internet has become so popular that idiots and morons like you can be using it to fight the progressives, how did you even land on nairaland, i hate silly set of people like you. animal

@Poster, even before I choose to do my research, I will say this. To get to where we need to be, there is NO AVOIDING debt of some kind. That being said, I will also say that I wish all that debt were spent FIRST on ensuring majority of the basics are available, not just for the rich but also for the poor in the state.

Now, I will go back and do my research and then come back to post some more . . .

This means we've had a budget deficit of over N180b per annum, year on year, over the last 3 years.

My question is, how is that deficit being financed. I think we'll find the answer in a number of syndicated loans, offshore and onshore, as well as dubious bond issues on the money markets.

In my estimation, Lagos State is probably indebted right now to the tune of about N1 trillion, due largely to the massive debt carried over from the Tinubu regime, yet, Eko O ni Baje!

paddy_lo:

well your estimation is wrong. . .Total outstanding debt today is in the region of N120bln. . .

There was a N275billion bond authorized,but only N100bln or thearabouts has been tapped

Pls go and investigate the debt profile of cities like Johannesburg,Los Angeles,Jakarta,New York and so on. .see it is likely to be much higher
They dont build good roads,bridges and have services like trash removal for free u know. . .

Lagos state Debt to GDP is actually very low. . GDP is estimated at $30bln. .while outstanding debts is about $1billion
Debt burden only becomes unsustainable when Debt to GDP exceeds 50%

Also dont forget the tenure. . If its longer tenure like 5yrs - 10yrs. . then its no big deal
as opposed to short term funds in 1 - 2yrs maturity

Like some others have mentioned here u borrow money to get rich
by investing in yourself. . .If not u wallow in poverty,and mediocrity

The choice is yours

FL Gators:

Eko to ti baje tan

seanet02:

@flgators,@henry46 and @poster. You all are morons, hired nairalanders hired by conservatives to destroy LAGOS, your mothers made a very big mistake, you should all have been washed away cos you are all moral and problematic burdens for us in Nigeria. You will all go to hell for being antiFASHOLA.

OAM4J:

Were ke? Otito koro abi? O da, mo ti dake o  

Mi o binu mo. Eko baje ti  

BTW, Se o pelu awon to njo fun Ekiti ninu profile pic e ni? But mi o ri eleyi ti aya e kun ninu won now  

OAM4J:

free flgators, she was only kidding. (note her use of smiley)

FL Gators:

ah ahn. o ni wa dake, sugbon o tun n soro ni?

La oju re daada. Emi ni mo aso awosodo obirin ninu aworan yen.