Fitch Ratings has affirmed the Long-Term Issuer Default Ratings of Kogi and Oyo States at ‘B’ with a Stable Outlook, citing their ongoing reliance on federal revenue transfers.

In its latest assessment published on its website, the agency said the ratings reflect expectations of continued fiscal stability in both states, despite external pressures and vulnerability to fluctuations in oil revenue.

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.”

Fitch noted that the states’ ratings are based on their volatile operating balances, which are sensitive to oil price fluctuations, as well as rising adjusted debt levels driven by increased capital expenditure.

“It reflects the combination of a ‘Vulnerable’ risk profile and a ‘bb’ financial profile,” Fitch said.

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.”

Fitch highlighted that although Oyo State has made strides in boosting its internally generated revenue, federal transfers—primarily statutory allocations and VAT—still make up about 80 per cent of its total revenue, in line with the national average for subnational governments.

The agency added that the risk profiles of both Kogi and Oyo are shaped by weak socioeconomic indicators and their heavy reliance on federal transfers, which remain volatile due to their dependence on hydrocarbon revenues.

Fitch reported that approximately 80 per cent of both states’ revenues come from federal allocations—primarily value-added tax and statutory transfers linked to oil sales.

IGR, the agency noted, contributes less than 20% of their operating revenue, falling 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.

Fitch noted that Kogi State’s direct debt stood at ₦122 billion at the end of 2024, reflecting the impact of naira depreciation, which raised the proportion of external debt to about 65 per cent of the total—up from 28 per cent at the end of 2023.

“Domestic debt decreased by 65% year on year in 2024 to a modest NGN42 billion,” Fitch noted.