An Overview of Lagos State’s Budget Deficit

A budget is defined as an estimate of income and expenditure for a set tenure, mostly in the future, by a government in this case. A budget can be in deficit or in surplus. In the Nigerian context, deficit budgeting has taken its reins ever since after the first Obasanjo administration.

In the Lagos context, the state, which is undoubtedly the commercial hub of the country, has operated on a deficit budget for a while now, as expenditure continues to outstrip government revenue. On the 11^th of December 2017, Governor Akinwunmi Ambode proposed a budget of 1.046trillion naira, approximately 12.146% of the federal government’s proposed budget, “the budget of progress and development” of 8.612 trillion naira (Budgit 2017). 699.082 billion would be earmarked for capital expenditure (approximately 66.8% of the total budget). 347.039 billion to recurrent expenditure (33.2%). This figure shows a 28.66% increase YOY, with FY2017’s figure being 813 billion naira

The increase in the state budget every year with much emphasis on capital expenditures has necessitated this review, with 489.690 billion in 2015, 662.588 billion in 2016, 813 billion in 2017 and 1.046 trillion in 2018.

DEFICIT BUDGETING

Using 2017 as a case study, with 642 billion as total revenue out of an 813-billion-naira budget. The deficit was to be financed by 22.5 billion naira in external loans, and 80-billion-naira bond issuance, with its second tranche already issued early last year. 46.3 billion naira would be raised through a 7-year bond at 16.75% rates, 38.75 billion raised in a 10-year bond with 17.25% interest rate, and also internal loans worth 47.6 billion naira. This adds to the existing external debt of $1.38 billion and domestic debt of 311 billion naira (2016).

The main area of concern with the issue of debt burden is numerous, with the first being that there might be a case of increased taxes in future due to efforts to service mounting debts and the effect of the debt servicing on future generations. Since Capex accounts for the bulk of the government expenditure, ceteris paribus, the infrastructure provided would be useful for future years.

The bane of this is that embarking on continuous capital expenditures YOY might lead to lack of proper maintenance and completion, as the government is in tenures and there would be lack of continuation, as seen in the uncompleted project of Ilubirin, since 2015. The state government, however, proposed to inject $500m into its development in 2017.

The worrisome effect of deficit spending is the fear of increased tax burden by the government to service accumulated debt. The lack of transparency and accountability in terms of the utilization of these proceeds and expenditure and their exact use is also worrisome and needs to be addressed.

The exponential increase YOY in the budgetary value from 2015 till date is also noteworthy as an 88.9% increase was recorded in 2016, and a corresponding 22% increase YOY in 2017, and finally a 29% increase YOY in 2018. These increases far supersede the YOY changes in years prior to 2015 (the highest margin was that of a 9% increase from 2011 (450.775 billion) to 2012 (491.941 billion).

SECTORAL ALLOCATION

The table above, which shows the increases in sectoral allocation from 2016 to 2018 indicates a 60% increase in Economic Affairs, which includes commerce and industry, agriculture and cooperatives, transportation and works and infrastructure. This increase is worrisome because the budgetary increase is not justified by the goals that are to be achieved this year. The question of whether previous capital requirements for government projects was not adequate for it, or that since funds have already been allocated for extensive capital expenditures in the previous years, why is there a significant increase in expenditures for this year, given that there does not seem to be any significant increase in projects to be undertaken.

The government should allocate specific funds for specific projects so that there can be more accountability and transparency with special reference to capital expenditure. There should also be proper tracking and monitoring of these projects all through its life cycle.

The increase in the budget size for health and education (80% and 36% respectively) is encouraging due to its contribution towards social welfare and the role of education and health towards human capital development and sustainable development goals. This increase in allocation would be an improvement so far it targets the needed population and there is adequate monitoring and execution of these projects.

Moving forward, emphasis should be placed on social protection, housing, and community amenities as well as the existing efforts on health and education, as these are important for the development of the people, social welfare and improving equality.

Lastly, the importance of science and technology, and also research and development cannot be overemphasized, as it would show the ability to be a first-mover in terms of changing trends and providing revenue for the future.

Debt, proper monitoring, and transparency, social equality, and welfare are the major concerns of this budget review, and the government should try to be as transparent and effective enough for accountability and posterity.

*YOY – Year on Year

Tamilore Asikhia is a volunteer with EiE Nigeria. You can also be part of our volunteer network here

References

Budget Department, Ministry of economic planning and budget (2016) – Lagos State Citizen’s Guide (2016)

Budgit – Lagos State Budget (2017)

Budgit– Lagos State approved budget omnibus (2016)

Nairametrics – Here is a breakdown of the Lagos State 1.046 trn 2018 budget (2017)