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Lagos carpets BudgIT over ‘misrepresentations’ in 2020 State of the States report

LAGOS State government has carpeted a civic advocacy group, BudgIT, for ‘incorrectly’ listing it among states whose revenue was not enough to fund their recurrent expenditure.

BudgIT’s recently released 2020 State of States report‎ had included Lagos among 13 states that are not fiscally sustainable and lacked the revenue capacity to fund their recurrent revenue in 2019.

The 13 states were Lagos, Oyo, Kogi, Osun, Ekiti, Plateau, Adamawa, Bauchi, Gombe, Cross River, Benue, Taraba and Abia.

However, although BudgIT had since reportedly apologised for ‘misrepresentations’ in its report, which led to the inclusion of Lagos in the list, the state government issued a statement where it appeared to reprimand the civic advocacy group over the development.

In a statement by Rabiu Olowo, the Commissioner for Finance, Lagos State Government noted that going by its financial statements, BudgIT should have correctly reported that the state recorded a surplus of N89 billion not a deficit of N39 billion.

“Lagos State continues to meet all its recurrent and loan service obligations and the information that was published is incorrect, inaccurate and a gross distortion of the actual facts,” Olowo said.

“As indicated in Lagos State’s published Financial Statements, the information in the table published by BudgIT should have correctly indicated a surplus of N89 billion not a deficit of N39 billion.”

He added that the State Government continues to explore options in both the financial and capital markets, to extract optimal funding solutions, which will enhance the administration’s ability to deliver on the construction, renewal, and improvement of the deficit in social and physical infrastructure for the benefit of Lagosians; who represent 10 per cent of Nigeria’s population.

Olowo further clarified that in the year under review (2019), Lagos restructured all existing internal loan facilities to 14 per cent per annum, from between 18 per cent and 20 per cent per annum, noting that these rates have even more recently been re-negotiated to 12 per cent per annum.

“Lagos is the only state that is not reliant on the allocation from Federal Account Allocation Committee, with Internally Generated Revenues representing 72 per cent of the state’s aggregate revenues to enable it to address challenges faced by megacities world over.

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“As of August 2020, Lagos Internal Revenue Service is doing 103 per cent above budget, and well above 2019 figures, despite the COVID-19 pandemic,” parts of the statement issued by the Commissioner for Finance said.

In an earlier statement which retracted details of the State of the States Report, 2020, BudgIT, through Damilola Ogundipe, its  Media and Communication Lead, said it never declared any state insolvent, even though the report said some states’ revenue was not enough to meet recurrent expenditure, such as salaries, overhead and debt service obligations.

In an effort to clarify the report, BudgIT noted that the 2020 State of States report is a snapshot of the fiscal health of all 36 States and the Fiscal Sustainability Index uses four key metrics or stress tests to provide a fair overall fiscal sustainability ranking of the states.

The statement quoted Gabriel Okeowo, BudgIT’s Chief Executive Officer and Principal Lead as explaining that “no single metric, when isolated, provides a fair assessment of any state and none of the tests used evaluates states’ fiscal status for insolvency”.

Further clarifying its report on Lagos, the statement said, “For instance, Lagos State has its total recurrent expenditure and ‘accelerated’ loan repayment amounting to about N555bn; but this is not an indicator of insolvency as BudgIT’s 2020 methodology for calculating state’s total revenue only used net FAAC allocation for all 36 States and their Internally Generated Revenue (IGR) – sourced from National Bureau of Statistics –  which brought Lagos State’s total revenue to N516.62bn as opposed to N644bn if other sources of revenues were added.

“We believe that the fair approach was to stick with the net FAAC payments and IGR due to the disparate nature of the public finance framework among Nigerian states.

“Other revenues such as capital receipts, grants and investment income were not added due to their volatility.

“We believe that states must position their finances in a way that their recurrent expenditure can be serviced solely by their central and internal revenue sources which was the basis for one of our metrics.”

BudgIT went ahead to explain that the goal of the 2020 report was to encourage states to reduce their overhead costs and debt burdens while improving their IGR and capital expenditures.

The statement further quoted Okeowo as noting that many ‘forward thinking governors’ who ranked top 10 in the 2020 Fiscal Sustainability Ranking are already doing improving their IGR and capital expenditures.

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He added that Rivers State improved the most in its IGR between 2018 and 2019 with a year-on-year growth of N27.62bn followed by Lagos and Kaduna states with IGR growths of N16.55bn and N15.51bn respectively.

BudgIT, in the statement, added that it has always cautioned states on the risk of exposure of exchange rate volatility inherent in foreign loans taken by their governments.

“We are also of the opinion that states should trim their overhead costs by applying rigorous efficiency measures – an instance in point – Bayelsa State with the smallest population in Nigeria mounting up recurrent spend and loan repayment obligations of N147.16bn, well above what Kano State incurs given its large population,” it added.

However, BudgIT added that, notwithstanding the issues that warranted the clarification, from the 2020 State of States analysis, it believes that a high number of all 36 states show varying degrees of distress.

“BudgIT is committed to working with all state governments and other stakeholders in identifying early warning signs that compromise the fiscal sustainability of Nigeria’s subnational economies through our annual State of States Fiscal Sustainability Ranking,” it added.

 

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