Fitch Maintains ‘Stable’ Outlook for Kogi and Oyo, Cautions on Heavy Federal Dependence
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of both Kogi and Oyo States at ‘B’ with a Stable Outlook, reflecting their continued fiscal stability despite external challenges. The agency, however, flagged their persistent overreliance on federal government allocations, particularly oil-linked revenues. This dependence exposes the states to risks associated with volatile oil prices and Nigeria’s broader macroeconomic environment. The affirmation follows the recent upgrade of Nigeria’s sovereign rating in April 2025.
For Kogi State, Fitch expects balanced fiscal performance even under stressed oil revenue conditions, thanks to significant federal allocations and reduced domestic debt in 2024. The state’s Standalone Credit Profile (SCP) is shaped by a vulnerable risk profile and a ‘bb’ financial rating. Notably, external debt now makes up 65% of Kogi’s direct debt—up from 28%—due to naira depreciation, while domestic debt has dropped to NGN42 billion.
Oyo State’s rating affirmation reflects moderate progress in improving internally generated revenue (IGR) and maintaining manageable debt levels, including limited foreign-currency exposure. Despite these efforts, federal transfers such as VAT and statutory allocations still account for 80% of its revenue, aligning with national trends. This leaves the state fiscally exposed to oil revenue swings, which are closely tied to global crude prices and exchange rates.
Fitch warned that both states’ fiscal health is tightly linked to oil-related revenues, which may remain above NGN100 billion even if oil prices fall below USD50 per barrel. The agency stressed that the limited contribution of IGR, below 20% for both states, heightens their vulnerability. Despite recent upgrades to subnational ratings due to improved national macroeconomic conditions, Fitch projects Kogi’s debt repayment burden will remain high in the medium term, underlining the need for diversification away from oil-dependent revenue streams.
Source: Nairametrics