A civil society organisation, Brain Builders Youth Development Initiative (BBYDI), has advised the Lagos State government and states within the South-West geopolitical zone to reduce borrowings, especially foreign loans, as such practices are deemed dangerous and economically unhealthy.
The Global Director of BBYDI, Abideen Olasupo, offered this advice in Lagos during the Southwest press briefing, desk review validation meeting, and public dialogue on Tax and Debt Justice, convened by the organization in collaboration with CISLAC Tax Justice and Governance Platform and Christian Aid Nigeria.
He mentioned that the meeting, attended by officials from tax authorities, Debt Management Offices, financial experts, community leaders, religious leaders, youth groups, civil society organizations, and media professionals, aimed to address issues related to the management of taxes and the critical imperative of debt justice within the South-West region.
A report on the ‘Debt Sustainability Assessment of the Southwest States in Nigeria,’ prepared by BBYDI, was also presented at the program.
Olasupo lamented the absence of government officials, particularly commissioners for finance in the six South-West states at the program, stating, “It is worrisome that whenever matters of transparent fiscal policies, accountable governance, and sustainable economic development are to be discussed, government representatives are usually absent.”
Regarding the Debt Sustainability Assessment report, which analyzed the financial status and budget implementation reports of each of the six states in the South-West between 2020 and 2022, Olasupo emphasized that governments in the region, especially that of Lagos, must curb their borrowings. He stressed that rising debt levels often translate to higher debt service payments, leaving a limited budget for essential public services.
He disclosed that data from the Debt Management Office (DMO) revealed that the overall debt profile of Lagos increased by 41.88% from N965.4 billion in 2018 to N1.4 trillion in 2022.
“Similarly, the foreign debt of Lagos State, which as of December 31, 2022, was $1.25 billion, is not only the largest in Nigeria but continues to grow, as seen with the 29.26% year-on-year growth in 2022,” he added.
Olasupo, who said Lagos was spending a larger part of its revenue on paying back debts, emphasized that the state government should stop accumulating foreign loans. He noted that the depreciating nature of the Naira increases the economic risks of obtaining loans in foreign currencies.
Quoting from the report, Olasupo said, “A look at the debt sustainability assessment of Lagos State reveals that its debt service to Gross FAAC ratio surpassed its sustainability threshold of 70% in 2021, 2022, and 2023, placing it at high risk on this index. This means that for the three years under review, its federal transfers/receipts from the federation account were inadequate to finance its debt service obligations. The state continues to spend a considerable part of its revenue on paying back its debt.
“Owing to Nigeria’s volatile foreign exchange rate regime, the Lagos state government needs to check its appetite for accumulating dollar, pound, and euro-denominated debt, as this can cause a huge strain on the state’s resources whenever the naira depreciates against the dollar.”
The report further reads: “Ondo state is the only state with a low risk on the debt-to-revenue ratio. The other five southwest states stand in the medium-risk cadre on the same indicator. The debt service to revenue ratio of Ekiti, Ogun, Ondo, and Oyo seems to be sustainable, as they are well below the DMO recommended threshold of 50%. Lagos State stands as the only state with a high-risk rating on the debt service to Gross FAAC ratio, as its ratio of 120.33% in 2022 is well above the recommended threshold of 70%.
“Osun and Ogun have a medium-risk rating, while Ekiti, Ondo, and Oyo are the most sustainable on the debt service to Gross FAAC ratio indicator. With a personnel cost to revenue ratio of 17.55% and 23.55% in 2022, Lagos and Ekiti state, respectively, stood as the only states with a low-risk rating on the personnel cost to revenue indicator. The remaining four other southwest states maintained a medium-risk rating. Four states—Oyo, Ondo, Ekiti, Osun—appeared in the red zone on Gross FAAC to revenue ratio because those four had more than 60% of their total revenues through federal transfers, which is above the recommended threshold of 50%.
“Lagos, on the other hand, has the most healthy Gross FAAC to revenue ratio, while Ogun has a moderately healthy Gross FAAC to revenue ratio. Finally, four states—Osun, Ekiti, Ogun, and Oyo—have less than 30% of their public debt in foreign currency, making them less susceptible to exchange rate volatility. The other two states—Lagos and Ondo—need to reduce the ratio of their public debt in foreign currency to below 30%.”
