Fitch updates Lagos, Kaduna, evaluation of the investments of two other states

Fitch’s assessments have updated the long-term and local currency in charge of the local and local currency, Kogi, Lagos and Oyo from “B-” B “, reflecting better macroeconomic stability and recent political reforms in Nigeria.

The global rating agency has announced the development on its on Saturday website, noting that the prospects for all four states remain stable.

According to Fitch, the evaluation action follows the update of the sovereign credit rating of Nigeria from “B-” A “B” on 11 April 2025.

The agency explained that in line with its evaluation criteria, the updating of the sovereign evaluation was reflected in the United States, given the predominant role of the federal government in the intergovernmental tax framework of Nigeria.

“We consider that the role of the Federal Government is predominant in intergovernmental relations, as it controls the equalization mechanism issued through a system of transfers to the States. Therefore, the update of IDR sovereigns is reflected in the update of those of Kaduna, Kogi, Lagos and Oyo, as their autonomous profiles are aligned or are above the Nigeria rating.

The agency cited several key drivers behind the magazine projections for the four states. These include a steeper depreciation than Naira, which should exceed N1,500 in the dollar between 2024 and 2028 and a high but gradually falling inflation trend.

He also noticed an increase of over 20 % in the federal VAT and transfers to oil related to states in 2024, providing critical financial support.

However, Fitch warned that the strong weakening of the Naira increases the risks of the debt service for states with a substantial exposure to the external debt.

Fitch reported that 86 % of the direct debt of the Kaduna state at the end of 2023 were called in foreign currencies, exposing the state to a significant currency risk.

While Kaduna benefits from strong operating margins of about 40 %, guided by the growth of revenues generated internally and by the greater growth of federal transfers, the agency designs the state’s reimbursement ratio to remain high about 18 times, reflecting a weak debt service capacity.

For the state of Kogi, Fitch said that his debt mix between national and foreign loans is largely linked to ambitious capital expenditure projects.

The state reimbursement report will be expected to remain about 20 times in the medium -term, with the agency that highlights the vulnerability of Kogi to the fluctuations of the revenue of oil that could affect the tax sales.

In the state of Lagos, despite having 50 % of its direct debt in foreign currencies, Fitch projects a much stronger tax position. Lagos’s reimbursement report should remain robust about five times by 2028, supported by its exceptional revenues generated internally, which represent 75 % of its total operational revenues compared to the national average of 25 %. It is also expected that the state will record a budget surplus in 2024.

The state of Oyo, with a mainly local currency debt profile, is at a lower exchange risk. Fitch provides that his reimbursement report remains under nine times, supported by an increase in federal transfers. However, concerns persist for Oyo’s dependence on oil revenues and its weaker secondary tax metrics.

Fitch also evaluated the environmental, social and governance risks in all states. Kaduna, Kogi and Oyo have each received a score of ESG relevance of 4 for biodiversity and the management of natural resources, reflecting their dependence on oil revenues. Kaduna has to face further challenges related to the Eg, including low energy management efficiency, current ethnic conflicts that affect civil rights, human development indicators below average and a significant population that lives in poverty.

The agency also observed that the Lagos State’s autonomous credit profile is evaluated at “B+”, reflecting a vulnerable risk profile and strong financial metrics at the top of the “AA” category.

However, its overall evaluation remains limited by the sovereign ceiling of Nigeria. In the meantime, the states of Kaduna, Kogi and Oyo maintain the SCPs “B”, characterized by vulnerable risk profiles and financial metrics between the “A” and “BB” range.

Fitch concluded that although external risks persist, the overall financial profiles of the four states have strengthened in line with the wider improvement of the macroeconomic fundamentals of Nigeria.

The Governor of the State of Lagos, Babajide Sanwo-Oell, greeted the recent updating of the credit rating of the Lagos State by Fitch’s assessments, describing it as a testimony of the strength of the policies and execution of his administration.

In his response, he stressed that the update is not only a recognition of the past results, but also a call to remain engaged in an even greater action going on.

“This is a good verdict on our performance in terms of political decisions and execution of the project. It is also a request to be more active; we will be in every sector. I thank the Lagosians for their support,” said Sanwo-Olu.

Sanwo-Ever also explained that the ability of the state to resist economic challenges, despite external factors such as currency fluctuations, is rooted in its strong financial position.

He observed that at the end of 2023, 50 % of the direct debt of the state of Lagos was called in foreign currencies, exposing it to currency risks. However, Fitch provides that the state will maintain a strong reimbursement ratio of five times by 2028, strengthening the ability of the state to serve its debt obligations.

“The agency observed that by the end of Y2023, 50 % of the direct debt of the Lagos state was called in foreign currencies, highlighting a considerable exposure to currency fluctuations. However, despite this, the Lagos Fitch Reimbursement ratio to remain strong about five times by the end of the Y2028”, he added.

He reiterated the commitment of his administration for sustainable economic development, stating that the state will continue to give priority to projects that guide long -term growth and investments.

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