Fitch upgrades Lagos, 3 different states to steady

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

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

In step with Fitch’s ranking 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 contemplate 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. Subsequently, 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 development of excessive however steadily 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 point of the naira heightens the debt service dangers for states carrying important 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 currency, leaving it extremely uncovered to forex dangers, the company famous.

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

Regardless of these challenges, Flitch mentioned the state advantages from sturdy 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 overseas borrowings, largely used to finance its bold capital expenditure initiatives.

Fitch initiatives the state’s payback ratio to stay round 20 instances over the medium time period, indicating important stress on its capacity to service debt.

The company mentioned the state’s fiscal efficiency, nevertheless, is marked by excessive volatility attributable to its heavy dependence on oil-related transfers from the federal authorities, making its funds balances significantly delicate to fluctuations in world oil costs.

Lagos State (‘aa’): 

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

Regardless of this, Fitch initiatives Lagos’s payback ratio to stay sturdy at round 5 instances 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 complete working income, far exceeding the nationwide common of 25%. Supported by this sturdy income base, Lagos can also be anticipated to report a funds surplus in 2024.

Oyo State (‘a’): 

Oyo State’s debt profile is primarily denominated in native forex, which helps to cut back its publicity to overseas change dangers.

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

• Nonetheless, volatility stays a priority attributable to 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 ‘Weak’ danger profile and a monetary profile assessed on the higher finish of the ‘aa’ class.

Nonetheless, its Issuer Default Scores (IDRs) are capped by Nigeria’s sovereign ranking. In the meantime, Kaduna, Kogi, and Oyo states every preserve ‘b’ SCPs, characterised by weak danger 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 assist monetary operations. Kaduna, nevertheless, faces further ESG-related challenges.

These embody points with Vitality Administration, marked by low effectivity and a excessive reliance on the nationwide grid; considerations round Human Rights and Political Freedoms, as ongoing ethnic conflicts proceed to impression civil rights; and weaknesses in Human Growth, with the state’s Human Growth Index falling beneath 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 beneath the poverty line, Flitch famous.