Fitch Rates Cross River, Oyo States ‘B’, Stable Outlook

Fitch Ratings has affirmed the Long Term Issuer Default Ratings (IDRs) of Cross River and Oyo states at ‘B’ with Stable Outlooks, citing resilient financial profiles supported by Nigeria’s ongoing fiscal reforms despite persistent fiscal and macroeconomic challenges.

The agency said the ratings reflect improved capacity by both states to self fund essential capital expenditure for infrastructure and social services, even as they remain vulnerable to fluctuations in federal allocations and rising debt levels.

For Cross River State, Fitch affirmed its Long Term IDR at ‘B’ with a Stable Outlook, noting that the rating is based on the state’s Standalone Credit Profile (SCP) of ‘b’. According to Fitch, Cross River’s operating performance remains sensitive to changes in federal government allocations, while increasing borrowing to finance capital projects continues to weigh on its fiscal position.

Fitch described the state’s risk profile as “Vulnerable”, reflecting weak revenue generation capacity, dependence on volatile federal transfers and limited flexibility to adjust spending. It however, noted that Nigeria’s fiscal reforms are expected to improve revenue flows to the state, estimating that the revised Value Added Tax (VAT) sharing formula, which raises states’ allocation to 55 per cent from 50 per cent beginning in 2026, would increase Cross River’s VAT receipts by about 20 per cent.

It added that the impact of the personal income tax reforms on the state’s revenue would likely be minimal as tax relief measures would be offset by a more progressive tax structure.

Despite the anticipated gains, Fitch maintained that Cross River’s ability to broaden its internally generated revenue remains constrained by a large informal economy, heavy dependence on agriculture and relatively low income levels.

Fitch also pointed to rising inflation, increasing commodity prices and the effects of naira depreciation as factors limiting expenditure control, while staff costs account for about half of the state’s operating expenditure.

Fitch projected that Cross River’s operating balance could decline to around 25 per cent over the medium term from an average of 50 per cent in the past five years if oil prices weaken, unless stronger internally generated revenue offsets the decline.

It also expects the state’s adjusted debt to rise significantly to about N980 billion by 2030 from N457 billion in 2025, driven largely by an ambitious N900 billion capital expenditure programme covering infrastructure, including airport, seaport, energy and industrial development projects.

Similarly, Fitch affirmed Oyo State’s Long Term Foreign Currency IDR at ’B’, assigned it a Long Term Local Currency IDR of ’B’ and maintained a Stable Outlook. It said Oyo’s rating reflects a resilient financial profile supported by fiscal reforms expected to strengthen funding for critical infrastructure and social investments.

Like Cross River, Oyo’s Standalone Credit Profile was assessed at ’b’, reflecting a combination of a vulnerable risk profile and an ’a’ financial profile. Fitch noted that Oyo continues to benefit from stronger internally generated revenue performance, particularly from land use charges and non tax revenues, while federal transfers have also increased significantly since 2024 on the back of higher oil prices, naira depreciation and additional oil related revenues.

In its  ratings, Fitch estimated that the revised VAT allocation formula would increase Oyo’s VAT receipts by about 30 per cent, while personal income tax reforms would have only a limited effect on the state’s overall revenue.

Nevertheless, it cautioned that Oyo’s revenue base remains exposed to federal allocation volatility and constrained by the size of the informal economy and relatively low income levels. On expenditure, Fitch said inflationary pressures, rising commodity prices and supply constraints continue to weaken spending control, while the state has substantial obligations in education, healthcare and infrastructure development.

The agency expects Oyo to undertake more than N3 trillion in capital expenditure between 2026 and 2030, with adjusted debt projected to rise to about N2 trillion over the same period under its downside scenario of weaker oil related transfers.

Fitch also assigned Oyo a National Rating of ’AA(nga)’, reflecting stronger financial performance than most Nigerian states, supported by robust internally generated revenue growth, relatively low direct debt and a manageable external debt profile.

However, it maintained that the state’s liquidity position remains weak due to the absence of committed liquidity facilities, with access to long term funding still largely dependent on federal government backed arrangements.