Fitch upgrades ratings of Lagos, Kaduna, others to ‘B’, citing improved macroeconomic stability
By Seun Ibiyemi
Fitch Ratings has upgraded the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of Lagos, Kaduna, Kogi, and Oyo states from ‘B-’ to ‘B’, with a Stable outlook for all four states.
The decision, announced on the agency’s website, follows the recent upgrade of Nigeria’s sovereign rating to ‘B’ from ‘B-’ on April 11, 2025. This upgrade was driven by improvements in macroeconomic stability and ongoing policy reforms.
Fitch applied the same rating change to the four states in line with its methodology, reflecting the substantial role of the federal government within Nigeria’s intergovernmental fiscal framework.
“The federal government’s dominant position, particularly through its control of the equalisation transfer system to states, underpins the alignment of state ratings with the sovereign,” Fitch explained.
Several factors contributed to the upgrade, including the sharp depreciation of the naira, which is expected to exceed N1,500 per US dollar between 2024 and 2028. Despite high inflation rates, the trend is declining, and federal VAT and oil-related transfers to states are set to increase by over 20 per cent in 2024.
However, Fitch also pointed to persistent challenges that may affect the states’ fiscal health. Kaduna, for example, remains heavily exposed to foreign currency debt, with 86 percent of its obligations denominated in foreign currencies by the end of 2023, exposing it to substantial currency risks.
Kogi’s fiscal performance remains volatile due to its reliance on oil-related transfers. Lagos, despite generating strong Internally Generated Revenue (IGR) that accounts for 75 per cent of its operating revenue, is still burdened by significant foreign currency debt exposure.
Oyo State, benefiting from local-currency-denominated debt, faces revenue volatility linked to fluctuations in oil prices but has a relatively lower debt burden compared to the other states.
Fitch also reaffirmed that while Lagos has a stronger Standalone Credit Profile (SCP) of ‘b+’, its IDRs are ultimately capped by Nigeria’s sovereign rating. Kaduna, Kogi, and Oyo retain ‘b’ SCPs, reflecting their more vulnerable risk profiles despite generally sound financial metrics.
Environmental, Social, and Governance (ESG) risks remain an important consideration, especially for Kaduna State, which faces challenges in areas such as biodiversity management, energy efficiency, civil rights issues, and human development.
In sum, Fitch’s latest rating upgrade underscores both progress in Nigeria’s state finances and the ongoing vulnerabilities that remain as economic conditions continue to evolve.
