{"id":118001,"date":"2025-04-27T21:20:29","date_gmt":"2025-04-27T20:20:29","guid":{"rendered":"https:\/\/pointblanknews.com\/pbn\/?p=118001"},"modified":"2025-04-27T21:20:29","modified_gmt":"2025-04-27T20:20:29","slug":"fitch-flags-currency-risks-despite-states-rating-boosts","status":"publish","type":"post","link":"https:\/\/pointblanknews.com\/pbn\/news\/fitch-flags-currency-risks-despite-states-rating-boosts\/","title":{"rendered":"Fitch Flags Currency Risks Despite States\u2019 Rating Boosts"},"content":{"rendered":"<div>Daniel Adaji<\/div>\n<div><\/div>\n<div>Despite upgrading the credit ratings of four Nigerian states, Fitch Ratings has raised concerns about rising currency risks that could weaken their financial stability.<\/div>\n<div><\/div>\n<div>The agency announced on its website that it has lifted the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of Kaduna, Kogi, Lagos, and Oyo states from \u2018B-\u2019 to \u2018B\u2019. The outlook for all four states remains Stable.<\/div>\n<div><\/div>\n<div>In the report accessed by Pointblank News on Sunday, Fitch explained that the action mirrors Nigeria\u2019s recent sovereign upgrade from \u2018B-\u2019 to \u2018B\u2019 on April 11, 2025, driven by what it described as \u201cimproved macroeconomic stability and policy reforms.\u201d<\/div>\n<div><\/div>\n<div>It stressed that the federal government\u2019s influence over intergovernmental finances played a key role in the decision. &#8220;We consider the federal government\u2019s role to be predominant in intergovernmental relations, as it controls the equalisation mechanism enacted through a system of transfers to states,&#8221; Fitch stated.<\/div>\n<div><\/div>\n<div>However, the agency warned that the steep depreciation of the naira, expected to surpass N1,500 to the dollar between 2024 and 2028, could pose significant risks to states with large foreign debt portfolios.<\/div>\n<div><\/div>\n<div>Among the states reviewed, Kaduna faces the sharpest exposure to exchange rate volatility. Fitch revealed that 86 per cent of Kaduna\u2019s direct debt was foreign currency-denominated as of 2023.<\/div>\n<div><\/div>\n<div>Although the state enjoys strong operating margins of about 40 per cent, its debt service burden remains heavy. Fitch projects Kaduna\u2019s payback ratio to stay around 18 times, signalling weak debt coverage relative to revenue.<\/div>\n<div><\/div>\n<div>Kogi State also faces mounting debt concerns. Fitch noted that the state\u2019s debt mix of local and external loans finances major capital projects but leaves Kogi vulnerable to oil market fluctuations.<\/div>\n<div><\/div>\n<div>The agency said, &#8220;Kogi\u2019s budget balances are particularly sensitive to fluctuations in global oil prices,&#8221; projecting a payback ratio close to 20 times over the medium term.<\/div>\n<div><\/div>\n<div>Meanwhile, Lagos stands out for its stronger financial fundamentals despite exposure to foreign currency risks. Half of Lagos\u2019s direct debt was in foreign currencies at the end of 2023.<\/div>\n<div><\/div>\n<div>Yet, the state\u2019s exceptionally high internally generated revenue (IGR)\u2014accounting for 75 per cent of operating income\u2014places it on stronger footing. Fitch expects Lagos to maintain a payback ratio of about five times by 2028 and post a budget surplus in 2024.<\/div>\n<div><\/div>\n<div>Oyo State enjoys some protection from currency shocks, as most of its debt is denominated in local currency.<\/div>\n<div><\/div>\n<div>Fitch predicts Oyo\u2019s payback ratio will remain below nine times, buoyed by higher federal transfers. Nonetheless, volatility persists. The state\u2019s heavy reliance on oil revenues and weaker financial metrics compared to its peers pose ongoing fiscal risks.<\/div>\n<div><\/div>\n<div>Beyond fiscal metrics, Fitch also pointed to Environmental, Social, and Governance (ESG) challenges that weigh on the ratings. Kaduna, Kogi, and Oyo scored 4 for Biodiversity and Natural Resource Management, highlighting their dependence on oil earnings.<\/div>\n<div><\/div>\n<div>Kaduna, in particular, struggles with broader ESG issues. Fitch flagged concerns around energy inefficiency, low human rights standards due to ethnic conflicts, and poor socio-economic conditions.<\/div>\n<div><\/div>\n<div>&#8220;Kaduna records below-average socio-economic indicators and a significant proportion of its residents living below the poverty line,&#8221; Fitch said.<\/div>\n<div><\/div>\n<div>In terms of Standalone Credit Profiles (SCPs), Lagos holds a \u2018b+\u2019 rating, reflecting a vulnerable risk profile but strong financials near the top of the \u2018aa\u2019 band. Kaduna, Kogi, and Oyo each maintain \u2018b\u2019 SCPs, indicating vulnerable positions with financial scores ranging between \u2018a\u2019 and \u2018bb\u2019.<\/div>\n<div><\/div>\n<div>The agency stressed that, although the states\u2019 ratings have improved alongside Nigeria\u2019s, external debt exposure and structural weaknesses remain major obstacles to long-term fiscal sustainability.<\/div>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content --><!-- AddThis Related Posts generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Daniel Adaji Despite upgrading the credit ratings of four Nigerian states, Fitch Ratings has raised concerns about rising currency risks that could weaken their financial stability. The agency announced on&hellip;<!-- AddThis Advanced Settings generic via filter on wp_trim_excerpt --><!-- AddThis Share Buttons generic via filter on wp_trim_excerpt --><!-- AddThis Related Posts generic via filter on wp_trim_excerpt --><\/p>\n","protected":false},"author":1,"featured_media":118002,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[5],"tags":[],"class_list":["post-118001","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Fitch Flags Currency Risks Despite States\u2019 Rating Boosts - Pointblank News<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/pointblanknews.com\/pbn\/news\/fitch-flags-currency-risks-despite-states-rating-boosts\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Fitch Flags Currency Risks Despite States\u2019 Rating Boosts - Pointblank News\" \/>\n<meta property=\"og:description\" content=\"Daniel Adaji Despite upgrading the credit ratings of four Nigerian states, Fitch Ratings has raised concerns about rising currency risks that could weaken their financial stability. 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