Fitch Upgrades Credit Ratings of Lagos, Kaduna, Kogi, and Oyo States Amid Nigeria’s Economic Reforms

Global credit rating agency Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDRs) of Lagos, Kaduna, Kogi, and Oyo states from ‘B-’ to ‘B’, reflecting improved macroeconomic stability in Nigeria. The upgrade follows Nigeria’s recent sovereign rating boost and aligns with Fitch’s criteria, which tie state ratings closely to federal performance. The agency noted that these states now benefit from increased federal VAT and oil-related transfers, even as the naira continues to depreciate sharply.

Despite the positive outlook, Fitch raised concerns about the rising debt service burden, particularly for states with significant foreign currency exposure. Kaduna, for instance, has 86% of its debt in foreign currencies, which, combined with its high payback ratio, signals weak debt service capacity. Similarly, Kogi’s ambitious capital projects and reliance on oil revenue pose fiscal risks, keeping its projected payback ratio at around 20 times. Oyo fares better due to its local currency debt profile but remains vulnerable to oil revenue fluctuations.

Lagos stands out with a far stronger fiscal profile. Although 50% of its debt is foreign-denominated, the state maintains a low payback ratio of five times and generates 75% of its operating revenue internally—well above the national average. The state is also projected to record a budget surplus in 2024. Fitch assigned Lagos a Standalone Credit Profile (SCP) of ‘b+’, noting its solid financial health but stressing that its rating is capped by Nigeria’s overall sovereign ceiling.

Lagos Governor Babajide Sanwo-Olu welcomed the upgrade as validation of his administration’s economic strategy. He emphasized Lagos’s resilience in navigating fiscal challenges and pledged continued investment in projects that foster sustainable growth. Meanwhile, Fitch assessed broader ESG risks, highlighting biodiversity issues and governance concerns in Kaduna, Kogi, and Oyo. Despite lingering risks, the overall rating improvements reflect progress in Nigeria’s macroeconomic environment and state-level financial governance.

Source: Punch