Fitch Ratings has upgraded the Long-Term Foreign- and Local-Currency Issuer Default Ratings of Lagos, Kaduna, Kogi, and Oyo states from ‘B-’ to ‘B’, citing improved macroeconomic stability and recent policy reforms in Nigeria.
The global ratings agency announced the development on its website on Saturday, maintaining a Stable outlook for all four states. The upgrade follows the recent elevation of Nigeria’s sovereign credit rating from ‘B-’ to ‘B’ on April 11, 2025.
Fitch explained that, in line with its rating criteria, the improved sovereign rating has been mirrored in the states, given the Federal Government’s predominant role in Nigeria’s intergovernmental fiscal framework. “We consider the Federal Government’s role predominant in intergovernmental relations, controlling the equalisation mechanism enacted through a system of transfers to states,” Fitch noted.
Key drivers behind the upgrades include a steeper depreciation of the naira — projected to exceed N1,500 to the dollar between 2024 and 2028 — and persistently high, but gradually declining inflation. The agency also highlighted a more than 20 per cent increase in federal VAT and oil-related transfers to states in 2024, providing crucial financial support.
However, Fitch warned that the sharp weakening of the naira increases debt service risks for states with significant external debt exposure. It reported that 86 per cent of Kaduna State’s direct debt at the end of 2023 was denominated in foreign currencies, exposing it to considerable currency risk. Although Kaduna enjoys strong operating margins of about 40 per cent, supported by internally generated revenue and increased transfers, its payback ratio is projected to remain high at around 18 times, indicating weak debt service capacity.
In Kogi State, Fitch pointed to a debt mix heavily influenced by ambitious capital expenditure projects, with the payback ratio expected to stay around 20 times over the medium term. The state’s fiscal balance remains vulnerable to fluctuations in oil revenues.
Lagos State, despite having 50 per cent of its direct debt in foreign currencies, shows a stronger fiscal profile. Fitch projects Lagos’s payback ratio to remain robust at around five times by 2028, supported by its exceptional internally generated revenue, which accounts for 75 per cent of its total operating revenue — far above the national average of 25 per cent. Lagos is also expected to record a budget surplus in 2024.
Oyo State, with most of its debt denominated in local currency, faces lower foreign exchange risk. Fitch projects its payback ratio to stay below nine times, buoyed by higher federal transfers. However, concerns persist regarding Oyo’s reliance on oil revenues and its relatively weaker secondary fiscal metrics.
Fitch also assessed environmental, social, and governance (ESG) risks across the states. Kaduna, Kogi, and Oyo received an ESG Relevance Score of 4 for Biodiversity and Natural Resource Management, reflecting their dependence on oil revenues. Kaduna faces additional challenges, including low energy management efficiency, ongoing ethnic conflicts, below-average human development indicators, and a high poverty rate.
Lagos State’s Standalone Credit Profile (SCP) is assessed at ‘b+’, reflecting a vulnerable risk profile but strong financial metrics at the upper end of the ‘aa’ category. However, its overall rating remains capped by Nigeria’s sovereign ceiling. Kaduna, Kogi, and Oyo maintain ‘b’ SCPs, characterised by vulnerable risk profiles and financial metrics between the ‘a’ and ‘bb’ ranges.
Fitch concluded that, despite ongoing external risks, the financial profiles of the four states have strengthened alongside broader improvements in Nigeria’s macroeconomic fundamentals.
Reacting to the development, Lagos State Governor Babajide Sanwo-Olu described the rating upgrade as a testament to the strength of his administration’s policies and performance.
“This is a good verdict on our performance in terms of policy decisions and project execution. It is also a call for us to be more active; we will be in every sector. I thank Lagosians for their support,” Sanwo-Olu said.
He explained that Lagos’s strong financial standing has helped the state withstand economic challenges, including currency fluctuations. He noted that by the end of 2023, 50 per cent of Lagos’s direct debt was in foreign currencies, but Fitch still projects the state’s payback ratio to remain strong at about five times by 2028.
Sanwo-Olu reiterated his administration’s commitment to sustainable economic development, emphasizing that Lagos would continue to prioritize projects that drive long-term growth and investment.
