Fitch upgrades Lagos, 3 different states to steady

Fitch Rankings has upgraded the Lengthy-Time period International- and Native-Forex Issuer Default Rankings (IDRs) of Kaduna, Kogi, Lagos, and Oyo states from ‘B-’ to ‘B’.

In accordance with info on the company’s web site, the outlook for all 4 states stays Steady.

The company famous that score motion follows the improve of Nigeria’s sovereign score to ‘B’ from ‘B-’ on April 11, 2025, reflecting improved macroeconomic stability and coverage reforms.

Consistent with Fitch’s score standards, the company has mirrored the sovereign improve within the affected states, given the predominant function of the federal authorities in Nigeria’s intergovernmental fiscal system.

“We think about the federal authorities’s function is predominant in intergovernmental relations, because it controls the equalisation mechanism enacted by means of a system of transfers to states. Due to this fact, the improve of sovereign IDRs is mirrored within the improve of these of Kaduna, Kogi, Lagos, and Oyo, as their Standalone Credit score Profiles (SCPs) align with or are above the scores of Nigeria,” Fitch famous.

Key Drivers of the Improve 

Fitch’s revised projections for Kaduna, Kogi, Lagos, and Oyo states consider a number of key elements. These embody a steeper depreciation of the naira, which is anticipated to exceed N1,500 to the US greenback between 2024 and 2028, and a pattern of excessive however regularly declining inflation.

Moreover, the company famous a rise of over 20% in federal VAT and oil-related transfers to the states in 2024, which helps their monetary positions.

Nonetheless, Fitch cautioned that the weak spot of the naira heightens the debt service dangers for states carrying vital exterior debt.

State-by-State Evaluation 

Kaduna State (‘bb’): 

On the finish of 2023, 86% of Kaduna State’s direct debt was denominated in foreign exchange, leaving it extremely uncovered to forex dangers, the company famous.

Fitch expects Kaduna’s payback ratio to stay at round 18 occasions, reflecting weak debt service protection and a excessive debt-to-revenue ratio.

Regardless of these challenges, Flitch stated the state advantages from robust working margins of roughly 40%, pushed by regular development in internally generated income (IGR) and elevated federal transfers.

Kogi State (‘bb’): 

Flitch famous that Kogi State’s debt profile displays a mixture of home and international borrowings, largely used to finance its bold capital expenditure initiatives.

Fitch initiatives the state’s payback ratio to stay round 20 occasions over the medium time period, indicating vital strain on its skill to service debt.

The company stated the state’s fiscal efficiency, nonetheless, is marked by excessive volatility resulting from its heavy dependence on oil-related transfers from the federal authorities, making its funds balances notably delicate to fluctuations in international oil costs.

Lagos State (‘aa’): 

By the top of 2023, 50% of Lagos State’s direct debt was denominated in foreign exchange, highlighting a notable publicity to forex fluctuations, Flitch notes.

Regardless of this, Fitch initiatives Lagos’s payback ratio to stay robust at round 5 occasions by the top of 2028. The state’s fiscal resilience is underpinned by its distinctive internally generated income (IGR), which accounts for 75% of its whole working income, far exceeding the nationwide common of 25%. Supported by this robust income base, Lagos can also be anticipated to document a funds surplus in 2024.

Oyo State (‘a’): 

Oyo State’s debt profile is primarily denominated in native forex, which helps to scale back its publicity to international alternate dangers.

Fitch expects the state’s payback ratio to stay under 9 occasions, supported by a rise in federal transfers.

• Nonetheless, volatility stays a priority resulting from Oyo’s heavy reliance on oil-related revenues and its weaker secondary fiscal metrics..
• Lagos State holds a Standalone Credit score Profile (SCP) of ‘b+’, which displays a mix of a ‘Susceptible’ threat profile and a monetary profile assessed on the higher finish of the ‘aa’ class.

Nonetheless, its Issuer Default Rankings (IDRs) are capped by Nigeria’s sovereign score. In the meantime, Kaduna, Kogi, and Oyo states every keep ‘b’ SCPs, characterised by weak threat profiles and monetary metrics that fall between the ‘a’ and ‘bb’ classes.

Environmental, Social, and Governance (ESG) Dangers 

Kaduna, Kogi, and Oyo states every have an ESG Relevance Rating of 4 for Biodiversity and Pure Useful resource Administration, reflecting their heavy dependence on oil revenues to help monetary operations. Kaduna, nonetheless, faces further ESG-related challenges.

These embody points with Vitality Administration, marked by low effectivity and a excessive reliance on the nationwide grid; issues round Human Rights and Political Freedoms, as ongoing ethnic conflicts proceed to impression civil rights; and weaknesses in Human Improvement, with the state’s Human Improvement Index falling under the nationwide common.

Kaduna additionally struggles with Inhabitants and Demographics, because it data below-average socio-economic indicators and a big proportion of its residents residing under the poverty line, Flitch famous.