Articles,  Business & Finance

Understanding Lagos State Finances and its Preference for External Debt over Internal Debt

Some Major Insights

  1. Lagos State Tax revenue of N315.06bln in 2018 is 869% more than the Internally Generated Revenue (N32.5bln) of all the 774 Local Governments in Nigeria in 2018. Read more on the finances of the Local Government in 2018 here
  2. Revenue from Land Use Charge is 2018 (N29.66bln) is 490% more than the revenue from the same source in 2017. Recall that a new legislation on Land Use Charge in Lagos state was passed on February 5th 2018. Read more on it here
  3. 67% (N250.012bln) of its IGR (Taxation income (N315.058bln) plus Levies, fees and fines (N56.70bln)) came from PAYE in 2018. This PAYE amount is however 79% of total income from taxation.
  4. The state generated N1.61 trillion as revenue in three years (2016-2018). Total expenditure amounted to N2.06 trillion during the same period.
  5. The Lagos state economy is three times that of Ghana. If it were a country, only Nigeria, South Africa, Egypt and Algeria will be bigger than it in terms of GDP. Read more on the comparable analysis of the economies of the world in 2018 here

Financial Performance in Three Years (2016-2018)

Economically, the performance of Lagos State is second to none in Nigeria as it contributes 34% to the Nigerian economy. Financially, the state has been increasing its revenue geometrically over the past three years, major thanks to the state’s ability to leverage on its growing economy to generate more revenue for itself during a given fiscal year.

Lagos state’s total revenue increased by 13.6% in 2017 from N449.61bln recorded in 2016 and this also grew by 27.8% to N653.01 in 2018 from N511bln recorded in 2017. Its highest expenditure during the three years under review was recorded in 2017 at N707.76bln, an increase of 1.27% from N698.86 recorded as total expenditure in in 2016. That said, Lagos state only surplus during the period under review was recorded in 2018 as there was a surplus of N3.36bln due to total revenue being higher than the total expenditure by 0.5%. Total assets, total liabilities and net assets all grew by 13.9%, 14.6% and 13.5% respectively in 2018.

Table 1: Summary of Lagos State Finances since 2016

Reviewing the year 2016 performance on a cash basis compared to prior year, revenue grew by 17% from N384.4 billion in 2015 to N449.6 billion in 2016. This increase was as a result of the 16% and 6% increases recorded in internally generated revenue and statutory allocation respectively. The State’s recurrent expenditure also increased by 16% from N240.6 billion in 2015 to N277.9 billion in 2016, while a 24% increase from N174 billion in 2015 to N215.2 billion in 2016 was noted in capital expenditure.

Lagos State does not Need Federal Allocation to Survive

It has been a public argument that most states in Nigeria cannot perform without the monthly federal allocation given to them. For some states, they solely depend on this allocation for the payment of salaries. As such, workers welfare is what is paramount to these states than overall welfare of their states.

However, this is not the case for Lagos state as Federal allocation alone is not even up to 20% of what the state generate as PAYE tax. The addition of Federal allocation (N38.23bln) and VAT income (N80.23bln) given to Lagos state in 2017 is just about 40% of its revenue from tax during the same period.

Illustration 1: Lagos State Tax Revenue versus Federal Allocation

Data Source: LASG

In 2018, the state generated N315.06 from taxes of which 79% came from the PAYE tax while withholding tax and entertainment tax amounted to N24.15bln and N2.93bln respectively. Total federal allocation during this period was N57.05bln which is almost equal to the total income derived by the state on Land use charge, Licenses, fines and fees at N56.70bln.

But should the way it Spends Money be Worrisome?

In 2018, Lagos state total expenditure amounted to N649.64bln of which 42% was spent on recurrent expenses while capital items, foreign exchange losses and public debt charges accounted for the remaining 58%. Total capital expenditure as a percentage of total expenditure was however 32% of total expenditure. Therefore, 42% of Lagos State’s total expenditure in 2018 was on recurrent expenses, capital expenditure took 32% while other expenditure during the period was 26% of the total expenditure.

Illustration 2: Lagos State Recurrent and Capital Expenditure since 2016

Data Source: LASG

Over the three years period, Lagos State generated N1.61 trillion as revenue while total expenditure amounted to N2.06 trillion during the same period, thereby creating a deficit of N442.65bln (having in mind that its total public debt as at December 2018 stood at N797.43bln). The illustration above however shows that on the average, Lagos state spent as much as it spends on recurrent expenditure, on capital expenditure over the three years period under review and adequate spending on capital items is seen as a right step towards the much needed economic growth and development in an economy. It is only in a situation where revenue is spent almost solely on administrative overheads and consumption commodities, with little on acquisition of assets that the economy is sure to go bankrupt as soon as the rate of revenue recharge begins to fall.

External Debt grows but External Debt Servicing slows…

As at December 2016, Lagos state total debt was put at N779.87bln of which external debt constituted 52.7% of this amount. By December 2017, total public debt grew by 8.3% of which external debt also went north by 10.6%.

Illustration 3: Growth in Lagos State Public Debt Profile

Data Source: LASG

Furthermore, analysis of the state’s debt profile shows that while external loan contributes the most proportion to total debt (55% in 2018 and 54% in 2017), servicing of the loans sourced externally tend to take a smaller proportion of overall debt services (7% in 2018 versus 8% in 2017). This is as a result of low interests on the foreign loans (between 0.75% and 2.37% compared to interest on its domestic loans ranging from 18% to 22% per annum) as well as the longer tenor of the external loans between 20 and 40 years and moratorium ranging from 5 to 13 years. The Lagos state government still has loan balances running from 1989 (35 years) to the one signed in 2018 (3 years tenor). This shows that it costs less to borrow externally than to borrow internally, hence the reason for the huge external borrowing and low external debt service.

Illustration 4: Lagos State Debt Service as a Percentage of Revenue

Data Source: LASG

In 3 years, Lagos state used 36% of its combined revenue to service its public debts (12% in 2016, 13% in 2017 and 11% in 2018. LASG debt service in 2018 was N72.45bln (external debt service accounted for N5.14bln of this amount) while its total revenue amounted to N653.01bln. In 2017 and 2016, debt services amounted to N65.61bln and N55.57bln respectively.


As it is widely known, Lagos State and FCT generate about 50% of Nigeria’s VAT revenue. The state is also the highest earner of PAYE tax in the country and it leverages on its robust economy to generate income for itself through other channels such as the Land Use charge. The state has 12 categories of taxes and three categories of fines and levies of which the category with the lowest amount of income contributed was Development levy (N143.421 million). All these shows the state is a cash generating one and its statement of net cash flow from operating activities in 2018 is a testament to this.

Its path of expenditure also is a good one as the state has shown its interest in the development of critical infrastructure and this can be seen physically from the various developmental infrastructure across the state.

However, the public debt of the state at present is a source of concern and going forward, it is believed that it will become minimal when the state begin to reap the gains of its capital expenditure spread across the state.

Download 2018 Lagos State Financial Statements Here

Download 2017 Lagos State Financial Statements Here

Download 2016 Lagos State Financial Statements Here

Download 2015 Lagos State Financial Statements Here

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