Fitch Ratings has upgraded the long-term credit ratings of Kaduna, Kogi, Lagos, and Oyo states in Nigeria from 'B-' to 'B', reflecting improved macroeconomic stability and recent policy reforms. The outlook for all four states is stable.
This upgrade follows Fitch's recent upgrade of Nigeria's sovereign credit rating.
The agency explained that the states' ratings are influenced by the federal government's significant role in Nigeria's fiscal framework.
Several factors drove the upgrade, including increased federal transfers to states and high but declining inflation.
However, Fitch warned about the naira's depreciation, which could impact states with substantial foreign debt exposure, such as Kaduna.
Despite having 50% of its direct debt in foreign currencies, Lagos boasts a strong fiscal position due to its high internally generated revenue.
Governor Babajide Sanwo-Olu welcomed the upgrade, viewing it as validation of his administration's policies.
He emphasized Lagos's ability to manage economic challenges and its commitment to sustainable growth.
While Oyo, with mostly local currency debt, faces lower foreign exchange risk, concerns remain about its reliance on oil revenues.
Kogi's debt is tied to capital projects, and its fiscal balance is vulnerable to oil revenue fluctuations.
Kaduna, despite strong operating margins, faces significant currency risk due to its high foreign currency debt.
Fitch also assessed environmental, social, and governance risks, noting Kaduna's dependence on oil revenue and various social and governance challenges.
