Economic theory suggests that finance shapes the distribution of economic opportunities. The financial system affects the degree to which person’s economic opportunities are defined. It influences who can launch a new business venture and who cannot, who can acquire education and who cannot, and who can pursue one economic dreams and who cannot.
At government level there is a robust positive relationship between financial policies and both infrastructural development and poverty alleviation. It is not just that finance accelerates economic growth, which trickles down to the poor; rather, finance exerts a disproportionately positive influence on lower income households.
In Lagos State, finance and financial policy under Mr. Akinwunmi Ambode’s administration is not short of ambition. The administration has continued to seek new ways to grow the economy of the State in order to achieve a sustainable and inclusive growth and development across the State. Building on the connection between finance and development, it is accurate to adjudge the State’s Ministry of Finance as the most crucial of the MDAs germane to the developmental strides in the State. The Ministry monitors all State Revenue Sources, ensures budget discipline and determines the funding priorities of the State cash supply among other vital assignments.
In spite of the weak and disheveled federal structure that has not accord it due status, Lagos, no doubt, is performing at position similar to how cities such as Chennai and Hyderabad in India and Medellin in Columbia had in the past outperformed and outshone their national government in promoting growth and poverty reduction.
A key secret of Lagos’ economic growth as contained in account of stewardship recently reeled out during Ministerial Press briefing by the Commissioner for Finance; Mr. Akinyemi Ashade is revenue enhancement reforms. The aim of the reform is to achieve higher Internally Generated Revenue (“IGR”) levels to provide a sustainable financial base for bridging the huge infrastructure deficit estimated at over US$50bn. This has necessitated implementation of financial policy such as widening of the State tax net, expansion of tax base, updating/upgrading of databases, improvement of administrative processes and operational efficiencies, among others. Notably, the State has so far achieved an average monthly Internally Generated Revenue (IGR) of N34billion in 2018 compared to monthly averages of the last three years.
There is optimism that the IGR would continue to rise even further as the State continues to implement the various reforms, driven by wider technology adoption and innovation.
While others still rely solely on allocation from Abuja, Lagos has decided on introducing a new governance structure and remuneration structure that will motivate Lagos State Internal Revenue Service LIRS staff to improve on their productivity. Part of the reform in the LIRS is the process of introducing a whistle blowing framework for LIRS with the aim of promoting transparency and maximizing revenues by curbing evasion, under-declaration of assets and income and corrupt behavior.
Of importance also among the financial policy of the State is the upgrading and smoothening of payment processes with increased emphasis on minimizing payments of government revenue in cash. The deployment of internet banking, Mobile application, USSD and POS including the in-branch RevPay application has reached advanced stage with the State banking partners. These are to make revenue payment seamless and facilitate transactions with the latest payment technology. Surely, this is already assisting the State Government in blocking revenue leakages and improves accountability and transparency.
In a system where governance has been reduced to paying salaries of workers, Lagos State has not only prioritized researching into it infrastructure deficit but has made infrastructure deficit financing a key segment of it financial policy. The Lagos State’s infrastructure gap had been previously estimated at US$50bn. However, this estimate is not comprehensive as it did not include sectors such as housing, education and health. Consequently, activities are currently ongoing to review and update this estimate to make it as comprehensive as possible and ensure that it is reflective of the State’s current economic realities.
For reason of attracting further private sector investment into the State, the State Government has continued to strengthen the two strategic Offices of Public-Private Partnerships and of Overseas Affairs & Investments (Lagos Global).
Another area of public finance where Lagos has become a reference point is that of facilitating implementation of international public sector accounting standards (IPSAS) by the administration. It is cheering to report that, the State financial statements for the year ended 31 December 2016 which was published last year was prepared on a transitional accrual accounting basis making Lagos State the first State in Nigeria to officially publish its financial statements in line with the International Public Sector Accounting Standards (“IPSAS”). Other States are encouraged to take steps to also transit towards the adoption of IPSAS in line with global leading practices.
The Debt Management Department (“the Department”), under the Ministry of Finance has the overall responsibility of borrowing and issuing debt instruments on behalf of the State Government and managing the State Government’s debt portfolio. The Department plays a key role in implementing strategies to fund the State’s financing gap. Lagos State Government debt stock-to-GDP as at 2016 has been maintained at 2% from 2015, while reported total debt-to-total revenue in 2016 was 150% from 129% in 2015; both ratios being well below the World Bank thresholds of 40% and 250% respectively.
As a more attractive proposition of raising money, the State Government also established a multi-year infrastructural development bond of
N500bn (Five Hundred Billion Naira Only) out of which the State has issued a cumulative amount of N132.14bn; the first tranche of N47bn (Forty-Seven Billion Naira Only) was issued in December 2016, while the second tranche of N97bn (Ninety-Seven Billion Naira Only) was issued in August 2017. The sustained interest in the Lagos State Government Bond Issuance Programme is a confirmation of investors’ confidence in the State Government and its instruments.
As at 28 February 2018, the State Government had accumulated over
N36.7bn in the Sinking Fund accounts managed by independent trustees towards the redemption of existing bonds, with the next set of bond tranches of N80bn and N87.5bn set to mature in November 2019 and 2020 respectively.
The State Government recognises the need to clearly define the extent to which it is credit worthy and to bring this to the attention of all investors (both existing and potential local and international). Consequently, and in line with statutory requirements, an annual rating is carried out by both international and local rating agencies.
The latest Fitch rating was issued and released in February 2018, while the 2017/2018 rating reports by Messrs Global Credit Rating (“GCR”) and Agusto & Co. were also published during the period under review.
The State has continued to maintain a positive rating; however, a downgrade of the country’s sovereign rating would lead to a corresponding action on Lagos’ international drawing rights.
Finally, as the government is committed to maintaining financial accountability and transparency and to create a more robust financial base to support further development projects in the State, it is crucial for lagosians to play their part by fulfilling their civic duty of paying their taxes.
Musbau is of the Lagos State Ministry of Information and Strategy, Alausa, Ikeja, Lagos.