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Fitch affirms Kaduna State at ’B’, stable outlook

Global rating agency, Fitch Inc. has affirmed Nigeria’s Kaduna State’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘B’ with a Stable Outlook.

The affirmation reflects Fitch’s assessment of Kaduna’s risk profile as Vulnerable, with a revenue structure highly dependent on oil transfers amid internally generated revenues (IGR) that are increasing below expectations. The ratings also factor in the state’s growing debt to fund necessary CAPEX for the development of basic infrastructures and social services.

The ‘A+(nga)’ rating reflects Kaduna’s low-risk relative to the country’s best risk, given strong financial and revenue support from the central government.

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The Stable Outlook reflects Fitch expectation that Kaduna will improve its tax administration while maintaining a flexible expenditure framework, which will leave some margin to adjust to macroeconomic or social downturns.

According to Fitch, Kaduna’s revenue sources are sensitive to oil prices swings, since 50% of operating revenue depends on allocations of oil revenue transferred monthly from the Federal Accounts Allocation Committee (FAAC). Waning FAAC transfers amid the oil sector down-cycle have provided a stimulus to improve local tax collection of IGR, including fees, for which the states bear full responsibility for settlement and collection, but structural benefits may only be visible with time.

Within a national context, Kaduna’s fast-growing 8.2 million residents and a traditionally strong primary sector contribute to weak socio-economic standards, including a growing unemployment rate of around 30% and a poverty rate above 60%. The public sector is a key employer in the state, directly and through its planned investment programmes. A large informal economy hinders private sector development, which ultimately affects the IGR tax base.

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