Peterclaver Egbochue examines the implication of obtaining another loan by the Lago sState Governor, Mr. Akinwunmi Ambode, given the already high debt profile of the state
Upon assumption of office, Lagos State Governor, Akinwunmi Ambode, declared that he inherited a debt burden of N418.2 billion accumulated by the immediate past government of Raji Fashola. Though accompanied with a repayment plan lasting 40 years and above, it is believed to be a major increase from the N15 billion Fashola inherited from his predecessor, Asiwaju Bola Tinubu, in 2007. According to a recent report from the office of the Debt Management Office (DMO), Lagos ranks top on the list of highly indebted states with $1.17 billion. It is distantly followed by Kaduna with $234 million debt, Cross River ($142 million), Edo ($123 million), Ogun ($109 million), Bauchi ($88 million), Katsina ($79 milllion), Osun ($74 million), Oyo ($72 million) and Enugu ($69 million).
Given this situation, many of the newly inaugurated governors are faced with the challenge of having to service these loans and delivering on their electioneering promises to the people. It is generally believed that their predecessors who obtained these loans did not make judicious use of these loans, which resulted in their inability to service it and pay their worker. In fact, most of them embarked on capital projects that had economic value on the lives of the people. Today, most of the states owe their workers in arrears of five to seven months. The governors of most of the affected states are currently battling to reduce the huge debt burden including cutting down the over bloated size of government while others have refrained from appointing new commissioners soon to man the various ministries.
Most of the states have also refrained from applying for additional loans, which would provide immediate relief but later add more burdens on the state’s meager resources. However, this is not the case with Lagos State even with its highest debt profile. Only recently, the Board of Executive Directors of the World Bank approved $200m (about N39.4bn) credit to the state. Justifying the loan facility, the bank disclosed that it would support a range of reforms relating to fiscal sustainability, budget planning, budget execution and the investment climate in the state. A statement issued by the bank on Wednesday said the facility would help sustain the state’s recent economic growth and poverty reduction, while helping it to continue to deliver social services to the expanding population.
The statement read in part, “The credit from the International Development Association segment of the World Bank Group supports the Third Lagos State Development Policy Operation and is the last of a series of two development policy operations, which aim to improve public finances and the investment climate in a fiscally sustainable manner. “In the past decade, Lagos State achieved significant economic growth, improved its infrastructure and services, significantly reduced crime, and brought millions of people out of poverty.” The World Bank Task Team Leader for the project, Jariya Hoffman, said with enhanced budget transparency and efficiency, adequate funding could be shifted to programmes to benefit the state’s booming population, especially the poorest families.
“The operation’s focus on furthering improvewith ments in the transparency of the budget system, effectiveness of public expenditures, and the business climate will help sustain the pace of economic growth and thus the state’s positive momentum towards income equality and the delivery of public services,” he said.
The World Bank Country Director for Nigeria, Marie-Francoise Marie-Nelly, said, “This operation is designed to assist Lagos State in its quest to continue its recent success in spite of the challenges brought on by rapid economic and population growth. “As an urban agglomeration that has reduced income inequality during double digit economic growth, Lagos is an example of inclusive growth in Nigeria. If the Lagos experience is sustained, there is strong potential for this type of inclusive growth to spread to other parts of Nigeria.” According to the bank, the operation would enhance the state government’s fiscal sustainability by anchoring the budget on a framework that accounts for key fiscal risks and improves revenue collection.
Support for adopting a new approach to budget planning and preparation will ensure adequate allocation of budgetary resources to social services such as education and health. According to Dr. Phillip Nto, World Bank Consultant and the immediate Commissioner of Finance, Abia State, caution must be applied when it comes to accumulating debt. “Ordinarily when you collect bond, you are mortgaging your future because you pay over a long period of time and mortgage the future of the state,” he stated. Dr. Nto’s position is being reinforced by the Coalition Against Corrupt Leaders (CACOL), which described the World Bank’s N39.4bn loan approval for Lagos state as unwarranted.
The group’s Executive Chairman, Comrade Debo Adeniran, in a statement made available to newsmen in Lagos over the weekend, disagreed improvewith the reasons advanced by the World Bank as basis for the approval. The statement read, “The World Bank, unlike the contemporary commercial banks, essentially, neither out to make profit, nor to just satisfy its obligations as bankers, but basically has, as the centerpiece of its prerogatives, to ensure that in giving financial support to the needy government and states, the interest of the generality of the people should be paramount.
“Since governance itself is all about the people, the World Bank, as the citadel of financial back-up as well as the economic bedrock of the whole world, it is thus so expected that criteria for loan consideration should go beyond just the ability of such loan applicant to repay but more of what the loan is to be utilized for and of course, the record of performance of the applicant as regards its sincerity in strictly applying the fund for the original purpose.
“ How far has Lagos State government gone to provide the needed social services to the people that would justify the unending borrowing? On poverty reduction, building of developmental projects, what is the positive impact of their programmes on the lives of the average citizen of Lagos State? “In the area of infrastructure, it is an open fact that the unmotorable roads are more in number than the motorable ones. Even most of the roads that could be regarded as motorable have become a big hype of traffic jams on daily basis just because the flyovers, pedestrian bridges are lacking. All the measures that could make way for free traffic are not available and these are to be provided by the state.
Public transportation is still in short supply. “On housing, how many civil servants could boast of having houses of their own even after having put in decades of services to the state. Even where some are provided, the price tag is too high and beyond the reach of the average civil servant. “When we talk of providing social amenities we know that health institutions have been under- provided and it is not able to meet half the need of the people. On portable water, except for individual landlords, having to rely on making boreholes for occupiers of houses; the government has rendered that virtually to the background as over 80 percent of its citizens have no access to portable drinking water; they do not even talk about it anymore as if it does not fall within its priority.
“One would not be asking for too much for a state government like Lagos with an annual average IGR of over N400bn, to have in place social security schemes like the National Insurance Scheme for its citizens or civil servants, to take care of the un-foreseen? “The Debt Management Office DMO’s external debt figures (without adding domestic debts) show Lagos as Nigeria’s most indebted state with $1.17 billion debt. The Coalition queries the justification for additional loans approved by the World Bank and we challenge the state to justify how appropriately previous loans had been utilized and its impact on Lagosians.
We also challenge the state to come out and defend its present state of insolvency. “The state is owing so much and it could get to a point that no matter how much they earn from their Internally Generated Revenue (IGR), it may not be able to meet up with the repayment schedule and by the time a sizeable percentage of the earnings go to servicing loans, little would be left to address the core issues of governance which of course should be pro-people in every way. ”Looking at it from the angle of what happened at the Federal level which depended so much on oil, the fall in oil price almost collapsed the country’s economy.
A similar thing could happen to any state that depends so much on its IGR. There could be a sharp drop in the IGR and that may lead to such government’s inability to meet its obligations especially in the area of debt servicing.” CACOL expressed fear that, should the trend continue, it might get to a point whereby the greater bulk of earnings would go into loan servicing thus leaving so little for developing both the people and the state itself. Speaking further, Adeniran said “it must be realized that when such loans are given, the borrower premises its reasons for borrowing on its constitutional responsibility for making life better for the people.
He insisted that consideration for gratifying such loans should as well be premised on its end implication on the same people. “The World Bank should begin to look beyond the ability of the borrowers to pay back but the general implication of such deals on the lives of people; this is what informs the sharp difference between its corporate status and that of the other commercial banks.” As a government that promised transparency, all eyes are now on governor Ambode to rise to the challenge thrown by CACOL