The Lagos State Government has suffered a massive financial setback in 2023, recording a staggering N578 billion loss on foreign loans due to the depreciation of the naira against the US dollar.
According to the state’s 2023 audit report, the amount represents a sharp increase from the N20.5 billion loss reported in 2022.
This loss primarily stems from what is known as “exchange loss” on foreign loans, which occurs when the naira loses value compared to foreign currencies.
The Lagos State government has been grappling with the effects of a weakened naira, which directly impacts the amount the state owes on foreign loans.
Governor Babajide Sanwo-Olu, who has been leading the state, now faces the financial consequences of the weakened national currency, with the state losing N578,030,326,000 in 2023.
This loss is significantly higher than the amount spent on capital projects for the year, which stood at N314,276,460,000.
SaharaReporters’ review of the audit report revealed that the loss from foreign loan exchange rates, at N578 billion, was a staggering N263.7 billion more than the state’s capital expenditure for the entire year.
The capital expenditure covered a wide range of projects, from agricultural initiatives to infrastructure development, including roads, bridges, and health services.
In total, the state recorded an “Exchange Loss on Foreign Loans” of N263,753,866,000 more than its total capital expenditure, highlighting the depth of the financial challenge posed by the naira’s depreciation.
Dr. Muyiwa John Adetola, the acting State Auditor General, explained the reason behind the loss, saying, “Exchange gains and losses arise as a result of the translation of balances of monetary items at year end using the foreign exchange closing rate.”
In simpler terms, the state is required to convert its foreign debt into naira at the end of the year, and due to the naira’s depreciation, the amount in naira increases, leading to a significant loss.
The report also highlighted how this loss far outweighed other areas of spending by the Lagos State Government. For instance, the “Exchange Loss on Foreign Loans” was a massive N377.6 billion higher than the total General and Administrative Expenses for the state, which stood at N200.3 billion.
The General and Administrative Expenses covered a wide variety of operational costs, including consultancy services, fuel and lubricants, hospital expenses, security, and even travel expenses for state officials.
Despite the significant loss from foreign loans, Lagos State still made progress on various projects. However, the financial burden created by the foreign loan depreciation continues to create challenges for the state’s development plans.
The Lagos State government has long relied on foreign loans to fund a wide range of capital projects, including roads, bridges, health facilities, and even cultural development initiatives.
Some of the key projects listed in the 2023 audit report include the LAMATA Bus Rapid Transit (BRT) project, health projects, environmental control programs, and investments in infrastructure such as roads, drainage systems, and bridges.
Other projects funded through capital expenditure include water equipment, security expenses, and educational investments.
Despite these ongoing projects, the loss from foreign loans remains a cause for concern for state officials and residents.
One government official, who asked to remain anonymous, shared their concern over the financial impact of the exchange loss, saying, “This is a huge blow to the state’s financial standing, especially as it affects critical projects that benefit the people directly.”
The state’s efforts to maintain essential services and continue its infrastructural developments have now been complicated by the dramatic exchange loss.
Governor Sanwo-Olu’s administration has been under pressure to manage these financial challenges while still working to provide services and improve the living standards of Lagos residents.
