₦airaland Forum

Ibime:
For the same reason other states hold small percentage of yuan. . .

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.

joeycrack:
It is not an article, just my own thoughts. The quotes, facts and figures come from an article in the Times and Guardian.

You have the example of the quotes above. There's a significant anti-British rhetoric going on which in no way helps the 'special relationship'.

Obama backing Congress plans to retrospectively raise the liability limit for claims from $75m to $10bn.

Compared to other companies like Transocean, Haliburton, Anadarko, Mitsui, and Cameron Internaltional which are also liable for this, BP is being picked on unfairly and has paid a very serious as a consequence. BPs shares fell 47% at one point and before anyone screams punish the 'fat cats' a lot shares are owned by institutional investors, your insurance and pension funds.

you could argue that but a lot peoples pension do rely on BP paying dividends. About £1 in every £6 of UK pensions are exposed to BP.

I sympathise with America and think BP should be liable fairly for the actions. BP says it has enough financial flexibility to cover the expenses in the clean up then I feel congress shouldn't force it not to pay dividends especially when some peoples quality of life depended on that very same dividend.

joeycrack:
Naturally I will agree but £58b has already been wiped of its value, putting in serious jeopardy BPs ability to pay dividends which is the livelyhood of many UK pensioners. I sympathise with the American families but while a solution is been found we can have discussions about different ramifications of the spill.

Mainstream Keynesian economics is facing its last hurrah. The global fiscal stimulus championed last year by the Obama administration is coming undone, repudiated by the same Group of 20 that endorsed it last year. Now, against a backdrop of a widening sovereign debt crisis, we need to abandon short-term thinking in favour of the long-term investments needed for sustained recovery.

Keynesian stimulus was premised on four dubious propositions: that it was needed to prevent a global depression; that a short-run fiscal boost would jump-start the economy; that “shovel-ready projects” could combine short-term cyclical and long-term structural agendas; and, last, that the rapid rise of public debt occasioned by stimulus need not be a concern. That these ideas were so widely accepted was a testament to the perennial political attractiveness of tax cuts and spending increases.

In fact, the ubiquitous references last year to the Great Depression were glib; the policymakers had panicked. Adroit central banking could and would prevent depression. The hastily assembled stimulus packages were a throwback to naive Keynesianism. The relevant fact was that the US, UK, Ireland, Spain, Greece and others had over-borrowed for a decade, so a decline in consumption after 2007 was not an anomaly to be fought but an adjustment to be accepted.

Certain counter-cyclical spending is vital on social grounds. But stimulus measures such as temporary tax cuts for households or car scrappage schemes were dispiriting wastes of scarce time and money. They reflected a hope that a temporary fiscal bridge would carry us back to consumption and housing-led growth – a dubious proposition since the old “normal” had been financially unsustainable.

The talk of a green recovery, in which the fall in consumer spending would be offset by investments in sustainable energy, made sense and still does. Yet it was quickly undermined by the politicians’ insistence on “shovel-ready” projects. The shift to sustainable energy systems is a vital but long-term task. It could never be a short-term jobs programme. Maybe in China there are shovel-ready projects of sufficient scale, but not in the US.

Taking office in January 2009, President Barack Obama inherited the largest peacetime budget deficit in US history. By increasing it further, he made it his rather than his predecessor’s. He and his advisers ignored one of the key insights of modern macroeconomics: that the result of fiscal policy depends not only on current taxes and spending but also on their expected trajectories in the future.

The US was not in a credible position to raise an already enormous deficit “temporarily” because the prospect for future deficit cutting was and remains extremely clouded. America has absolutely no consensus on how to restore budget balance, as it is trapped between a federal government that provides too few public investments and services and a public that is almost maniacal in its opposition to tax rises. One cannot build a credible long-term fiscal policy by starting off in the wrong direction, with larger rather than smaller deficits.

The writer is director of The Earth Institute at Columbia University

Copyright The Financial Times Limited 2010.

Mainstream Keynesian economics is facing its last hurrah. The global fiscal stimulus championed last year by the Obama administration is coming undone, repudiated by the same Group of 20 that endorsed it last year. Now, against a backdrop of a widening sovereign debt crisis, we need to abandon short-term thinking in favour of the long-term investments needed for sustained recovery.

Keynesian stimulus was premised on four dubious propositions: that it was needed to prevent a global depression; that a short-run fiscal boost would jump-start the economy; that “shovel-ready projects” could combine short-term cyclical and long-term structural agendas; and, last, that the rapid rise of public debt occasioned by stimulus need not be a concern. That these ideas were so widely accepted was a testament to the perennial political attractiveness of tax cuts and spending increases.

In fact, the ubiquitous references last year to the Great Depression were glib; the policymakers had panicked. Adroit central banking could and would prevent depression. The hastily assembled stimulus packages were a throwback to naive Keynesianism. The relevant fact was that the US, UK, Ireland, Spain, Greece and others had over-borrowed for a decade, so a decline in consumption after 2007 was not an anomaly to be fought but an adjustment to be accepted.

Certain counter-cyclical spending is vital on social grounds. But stimulus measures such as temporary tax cuts for households or car scrappage schemes were dispiriting wastes of scarce time and money. They reflected a hope that a temporary fiscal bridge would carry us back to consumption and housing-led growth – a dubious proposition since the old “normal” had been financially unsustainable.

The talk of a green recovery, in which the fall in consumer spending would be offset by investments in sustainable energy, made sense and still does. Yet it was quickly undermined by the politicians’ insistence on “shovel-ready” projects. The shift to sustainable energy systems is a vital but long-term task. It could never be a short-term jobs programme. Maybe in China there are shovel-ready projects of sufficient scale, but not in the US.

Taking office in January 2009, President Barack Obama inherited the largest peacetime budget deficit in US history. By increasing it further, he made it his rather than his predecessor’s. He and his advisers ignored one of the key insights of modern macroeconomics: that the result of fiscal policy depends not only on current taxes and spending but also on their expected trajectories in the future.

The US was not in a credible position to raise an already enormous deficit “temporarily” because the prospect for future deficit cutting was and remains extremely clouded. America has absolutely no consensus on how to restore budget balance, as it is trapped between a federal government that provides too few public investments and services and a public that is almost maniacal in its opposition to tax rises. One cannot build a credible long-term fiscal policy by starting off in the wrong direction, with larger rather than smaller deficits.

Now we face a world economy with weak aggregate demand in the US and Europe, bulging budget deficits, sovereign debt downgrading and consumers unwilling to borrow. Governments are fighting for market credibility via draconian cuts in spending. This too is the wrong approach. We should avoid a simplistic austerity to follow the simplistic stimulus of last year. Here are some suggested guidelines.

First, governments should work within a medium-term budget framework of five years, and within a decade-long strategy on economic transformation. Deficit cutting should start now, not later, to achieve manageable debt-to-GDP ratios before 2015.

Second, governments should explain, and the public should learn, that there is little that economic policy can do to create high-quality jobs in the short term. Good jobs result from good education, cutting-edge technology, reliable infrastructure and adequate outlays of private capital, and thus are the outcome of years of sustained public and private investments. Governments need actively to promote post-secondary education.

Third, governments must of course also ensure social safety nets: income support for the poor, universal access to basic healthcare and education, a scaling up of job training programmes and promotion of higher education.

Fourth, governments should steer their economies towards needed long-term structural transformation. External-deficit countries such as the US and UK will need to promote exports over the next few years, while all countries must promote clean energy and new transport infrastructure.

Fifth, governments and the public should insist that the rich pay more in income and wealth taxes – indeed, a lot more. The upward re-distribution of the past 25 years has made our economies into extravagant playgrounds for the super-wealthy. Politicians of both the mainstream left and right in the US and UK have fawned over those who pay their campaign bills in return for low taxation. Even playgrounds should collect tolls – when it is billionaires in the sandpit.

We need, in sum, to reset our macroeconomic timetables. There are no short-term miracles, only the threat of more bubbles if we pursue economic illusions. To rebuild our economies, the watchword must be investment rather than stimulus.

The writer is director of The Earth Institute at Columbia University

The UN Security Council today imposed its toughest sanctions yet on Iran in what could be its last chance to prevent a defiant Tehran from acquiring a nuclear bomb.

Both China and Russia joined the 12-vote majority in favour of the sanctions in the 15-nation council, but Lebanon abstained and Brazil and Turkey voted against.

The resolution will be the fourth round of UN sanctions since 2006 aimed at curbing Iran’s suspected nuclear weapons ambitions – and it is not clear that the big powers will have time to negotiate another round before Iran achieves “breakout” potential to build a nuclear bomb.

Analysts voiced doubt that the tightened sanctions would dissuade Iran from pursuing a nuclear weapon that would upend the strategic calculus in the Middle East.

“Iran has been very successful at getting round sanctions to date and continues to find ways to move equipment and other supplies. They use false fronts and change ship names. They understand the legal limits of sanctions and are able to play around with them,” said Dr Theodore Karasik, research director at the Institute for Near East & Gulf Military Analysis in Dubai.

“Whatever happens, Iran will continue its nuclear weapons programme. Everyone in this part of the world understands that.”

The new UN sanctions will prohibit the sale of heavy weapons such as tanks, warplanes, attack helicopters and warships to Iran and allow inspection of planes and ships suspected of carrying banned cargoes.

The resolution will also freeze the assets of 41 more Iranian firms, including 15 controlled by the increasingly powerful Islamic Revolutionary Guards Corps.

Beaf:
Hmmmmm! Contradictions galore! You support land redistribution, yet you do not support Mugabe's reforms?

Droughts are a regular and devastating occurence in Eastern and Southern Africa, not just Zimbabwe. Droughts cause famine, not Mugabe.

Drought in Tanzania http://www.irinnews.org/report.aspx?reportid=46508
Drought in Zimbabwe http://ocha-gwapps1.unog.ch/rw/rwb.nsf/db900sid/ACOS-64C673?OpenDocument
Drought in Namibia http://www.odi.org.uk/work/projects/pdn/drought/rothauge.html
Drought in Zambia http://news.bbc.co.uk/1/hi/world/africa/2721275.stm

Cohomology:
Of course I also admire the SS (no different from the IDF), but that does not mean I'll support their carnage.

igboitalo:
while i do not advocate for violence u r naive if you think does white farmers will give up those land and again u said it will take time thirty years is it not a enough time

Afam:
See olodo, so Mugabe is crating famine ehn kwa? The mumuness no get part 2.

igboitalo:
can you do us a favour and answer this questions, 1,are u for land reform in zimbabwe 2 do you think is okay for one percent of a population to control more than ninty percent of the land in a nation

Afam:
Frustration seems to be setting in and I am liking it. Keep asking questions with obvious answers mumu like you.

igboitalo:
only grammer u sabi blow,lets  do some fact checks america might not be indebted to IMF/WORLD BANK that am not but they have debts of thirteen trillion dollars which in the long they can't pay this debts,  your white masters will be very proud of you for being a good house nigga because only an uncle tom will be against land reform in zimbabwe

Afam:
The funny thing about the internet is that any idiot can come up and claim to be an expert on any issue so go ahead with the nonsense you keep writing.

I can arrange otapiapia for you if you need any.

Afam:
Even as developed as the US is today it is indebted to the tune of trillions of dollars. This simply means that the US today cannot even afford to pay its debts. This also means that even the US is being sustained by credit lines being granted it by the likes of World bank and IMF.

igboitalo:
afam don't mind them, they dont understand the issue and they will still open their mouth and talk trash ask them this simple question are they for land reform in zimbabwe or not they will never give you an answer ,silly oyibo houseboy

Afam:
Only a confused idiot will post what you posted above and still not see the role of IMF and World bank in the Zimbabwe issue. If you cannot understand this then you are simply silly.

Gross domestic product rose 4 per cent last year, the first expansion in 11 years, while prices rose 6.5 per cent. In previous years, by contrast, inflation was measured in millions of per cent and the country’s economy regularly shrank 5-10 per cent.

Beaf:
Mugabe's hold on power is a totally different topic from the growing Zimbabwean economy (like oil and water). As for your claim that the land reform is making Zimbabweans poorer and dependent on aid, how come the economy is growing?