Fitch Ratings has allocated Cross River State ‘B-‘ rating, highlighting fiscal fragility and alarming N880 billion debt trajectory.
Fitch Ratings has assigned Cross River State a ‘B-‘ Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) and a ‘AA-(nga)’ National Long-Term Rating, underscoring the state’s fiscal fragility as its debt trajectory approaches an alarming N880 billion.
The ratings agency announced on Wednesday on its official website that this spotlights the state’s heavy reliance on federal revenue transfers and a swelling debt portfolio exacerbated by foreign currency exposure and rising expenditure.
The stable outlook reflects Fitch’s measured confidence in Cross River’s fiscal framework despite vulnerabilities tied to its weak socioeconomic profile, dependence on oil-linked revenue, and limited capacity for independent revenue generation.
It said that Cross River’s debt burden is projected to reach N880 billion under Fitch’s rating case, driven by an ambitious N600 billion capital expenditure plan, spanning the next five years and the naira’s sharp depreciation, which has doubled the state’s external debt in 2023.
External debt now accounts for 50 per cent of adjusted liabilities, it said, with domestic obligations and arrears, including contractor and pension liabilities, making up the balance.
“Cross River’s ‘B-‘ IDRs reflect its dependency on revenue transfers from the federal government of Nigeria, despite improving internally generated revenue (IGR).
Its ‘b-‘ Standalone Credit Profile (SCP) reflects manageable but rising debt, with some foreign-currency exposure. We apply a notch of asymmetric risk to highlight below-standard disclosure on debt details, including interest payments.
“Under our rating case of economic downturn, we forecast Cross River’s debt payback ratio at 14x on average in 2026-2028 with some volatility linked to changes in oil prices.
We expect debt/operating revenue to increase to above 400 per cent and weak debt service coverage by the operating balance.
“Cross River’s fiscal performance improved in 2023, backed by increasing VAT and statutory allocation.
Cross River’s operating margin ranges from 40 per cent to 65 per cent, supported by federal transfers and a moderate increase in IGR in the last three years.
“In our rating scenario, oil prices and naira depreciation will support Cross River’s revenue in the short term, but a medium-term reduction of oil prices below $50 per barrel would shrink the state’s operating balance to below 30 per cent, if not offset by higher IGR and VAT,” Fitch added.
The ratings agency said it expects Cross River’s net Fitch-adjusted debt to significantly increase to around N880 billion in its rating case of lower oil-related transfers.
“The increased debt includes the depreciation of Cross River’s FX debt, 50 per cent of adjusted debt at end-2023, under a scenario in which the N/$ exchange rate moves to N1,600/$-NGN1,800/$ and Fitch’s assumption of new borrowings to fund the state’s ambitious N0.6 trillion capex plan in the next five years,” the ratings agency said.