…Says State Highly Vulnerable To Exchange Rate Volatility
A new report has revealed that Lagos State’s dollar-denominated debt, which stood at $1.24bn as of December 31, 2023, accounted for 51.61 per cent of the state’s total debt stock.
The report highlights that this substantial portion of foreign currency debt leaves Lagos highly vulnerable to exchange rate fluctuations.
This analysis is part of BudgIT’s 2024 State of States report, titled “Moving Healthcare Delivery from Suboptimal to Optimal,” which was released on Tuesday.
According to the report, following the significant devaluation of the naira—from N448.08 per dollar on December 31, 2022, to N899.393 per dollar on December 31, 2023—Lagos’ external debt of $1.24bn surged by N557.28bn in naira terms.
“Subnational governments continued to grapple with a persistent reliance on borrowing to f inance their budgets in 2023, as the total debt stock of the 36 states surged by 38.1 percent, from N7.25tn in 2022 to N10.01tn. This growth was partly driven by a N606.12bn increase in domestic debt, resulting in an average year-onyear growth rate of 11.4 percent .
“By 31st December 2023, the total domestic debt stood at N5.86tn. The situation was further complicated by rising foreign debt, which increased by 4.1 percent, from $4.43bn in 2022 to $4.61bn in 2023. The liberalisation of the exchange rate exacerbated the financial strain on states, significantly raising their foreign loan repayment obligations in naira terms,” the report stated.
The report further noted that Lagos remained the most indebted in foreign currency, accounting for 26.9 percent of the total foreign debt.
“With a total debt stock of N2.18tn, a 58.23 percent increase in its debt stock of N1.37tn in 2022, Lagos maintains its place as the most indebted state in Nigeria. Lagos’s dollar-denominated debt, which was $1.24bn as of 31st December 2023, is 51.615 percent of its total debt stock, making it highly susceptible to exchange rate volatility,” the report said.
“Lagos state exceeded the recommended threshold of 50 percent for public debt to total revenue ratio; however, with a debt to revenue ratio of 174.53 percent, debt service to revenue ratio of 25.03 percent, and personnel cost to revenue ratio of 16.06 percent, Lagos remained below the recommended threshold for the indicators as mentioned above.”
Citing reports from the Lagos State Ministry of Health, BudgIT’s report revealed a significant health equity gap in the state. It explained that while 1 in every 95 women dies from childbirth in two of Lagos’s most vulnerable slums, Makoko Riverine and Badia East, only 1 in every 4,348 women in middle-class and affluent areas like Ikoyi, Eti-Osa, and Ikeja face the same risk.
Also, the report highlighted that the number of children who die before their fifth birthday in urban slums and rural areas is twice as high as those in middle-class and affluent areas
To address the health equity gap and many other health challenges confronting the state, including, but not limited to, insufficient human resources for health, low universal health coverage, inadequate healthcare infrastructure, high healthcare costs, and limited intervention in preventive care, the report stated that Lagos State Government spent N71.4bn on its health sector in 2023, which accounted for 4.79 percent of its total expenditure.
“While N25.44bn was spent on the construction and/or rehabilitation of hospitals and/or health centres, N744.11mn and N357.88mn were spent on purchasing health and medical equipment and procuring drugs/laboratory and medical supplies, respectively. Commendably, N15bn earmarked for constructing 15 primary healthcare centres in the 2023 state budget was fully disbursed and spent. Additionally, Lagos spent N5.87bn on building a New Massey Children’s Hospital,” the report revealed.
While commending the state for handling major disease outbreaks like Ebola and COVID-19, which would have ruptured Nigeria’s already fragile health system and economy, it noted that more investments need to be made in improving Lagos’s capacity to prevent, detect and respond adequately to disease outbreaks.
The report added, “Although N171.45mn was budgeted and N65.5mn disbursed as of September 2023 for the institution and maintenance of a responsive public health emergency preparedness system, Lagos requires much more funding to build a robust and responsive system to address recurring disease outbreaks like cholera and other infectious diseases. To reduce out-of-pocket expenditure and increase universal health coverage, the state would need to partner with the private sector, especially telecommunications companies, banks and Fintechs, to provide microinsurance to poor, vulnerable and underserved members of the Lagos community.”