Credit rating agency Fitch Ratings has affirmed the Long-Term (LT) Issuer Default Ratings (IDRs) of Kogi and Oyo States at ‘B’ with a Stable Outlook, citing both states’ continued dependence on revenue transfers from the federal government.
According to the agency’s latest assessments published on its website, the affirmation reflects expectations that both states will maintain fiscal stability despite external pressures but remain exposed to risks stemming from volatile oil revenues.
Kogi’s fiscal outlook
Fitch stated, “The affirmation reflects our expectation that Kogi’s fiscal performance will stay balanced, even under a stressed scenario of declining oil-related revenue, due to high allocations from the federal government, deleveraging in 2024, and manageable external debt. The LT IDR is derived from the state’s Standalone Credit Profile (SCP), and no other factor applies to the rating.”
The credit rating agency said it based the state’s rating on its volatile operating balance that is sensitive to changes in oil prices and rising adjusted debt to fund increasing capex.
“It reflects the combination of a ‘Vulnerable’ risk profile and a ‘bb’ financial profile,” Fitch said.
Oyo’s assessment
In its assessment of Oyo, Fitch stated, “The affirmation of Oyo State’s ratings reflects its continued dependence on revenue transfers from the federal government of Nigeria despite improving internally generated revenue (IGR). It also reflects Oyo’s manageable debt, with some foreign-currency exposure.”
The agency noted that while Oyo has made progress in increasing IGR, federal transfers—mainly statutory allocations and VAT—still account for around 80% of its revenue, a figure consistent with the national average for subnational governments.
States’ risk profiles influenced by reliance on FG allocations
Fitch said both states’ risk profiles are influenced by their weak socioeconomic profile and reliance on transfers from the federal government, which “can be volatile as they depend on hydrocarbons.”
About 80 percent of the states’ revenues come from federal allocations— mainly value-added tax and statutory transfers tied to oil sales.
Fitch noted that internally generated revenue (IGR) makes up less than 20% of operating revenue, below the median for Nigerian states.
“We expect transfers to move in tandem with oil prices, while the higher naira exchange rate against the US dollar helps offset oil price volatility. Although oil-related transfers should normalise over the medium term, they are likely to stay above NGN100 billion, even if oil prices are below USD50 per barrel,” Fitch stated.
The organisation noted that Kogi’s N122 billion direct debt at end-2024 encompasses the effect of naira depreciation, which increased the share of external debt to about 65% of direct debt, from 28% at end-2023.
“Domestic debt decreased by 65% year on year in 2024 to a modest NGN42 billion,” Fitch noted.
What you should know
In April, Fitch upgraded the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of Kaduna, Kogi, Lagos, and Oyo states from ‘B-’ to ‘B’.
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.
Fitch projects Kogi state’s payback ratio to remain around 20 times over the medium term, indicating significant pressure on its ability to service debt.
The agency said Kogi state’s fiscal performance, however, is marked by high volatility due to its heavy dependence on oil-related transfers from the federal government, making its budget balances particularly sensitive to fluctuations in global oil prices.
