Fitch Ratings has upgraded the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of Kaduna, Kogi, Lagos, and Oyo states from ‘B-’ to ‘B’.
According to information on the agency’s website, the outlook for all four states remains Stable.
The agency noted that rating action follows the upgrade of Nigeria’s sovereign rating to ‘B’ from ‘B-’ on April 11, 2025, reflecting improved macroeconomic stability and policy reforms.
In line with Fitch’s rating criteria, the agency has mirrored the sovereign upgrade in the affected states, given the predominant role of the federal government in Nigeria’s intergovernmental fiscal system.
“We consider the federal government’s role is predominant in intergovernmental relations, as it controls the equalisation mechanism enacted through a system of transfers to states. Therefore, the upgrade of sovereign IDRs is mirrored in the upgrade of those of Kaduna, Kogi, Lagos, and Oyo, as their Standalone Credit Profiles (SCPs) align with or are above the ratings of Nigeria,” Fitch noted.
Fitch’s revised projections for Kaduna, Kogi, Lagos, and Oyo states take into account several key factors. These include a steeper depreciation of the naira, which is expected to exceed N1,500 to the US dollar between 2024 and 2028, and a trend of high but gradually declining inflation.
Additionally, the agency noted an increase of over 20% in federal VAT and oil-related transfers to the states in 2024, which supports their financial positions.
However, Fitch cautioned that the weakness of the naira heightens the debt service risks for states carrying significant external debt.
