By Obinna Chima
Fitch Ratings has downgraded Lagos State’s Long-term foreign currency Issuer Default Rating (IDR) to ‘B+’ from ‘BB-‘ with a stable outlook.
The downgrade, according to the global rating agency reflected the application of Fitch’s “International Local and Regional Government’s Rating Criteria – Outside the United States.”
Therefore, following the recent downgrade of Nigeria’s Long-term foreign currency IDR, it decided to take a similar rating action on Lagos at the same level as the sovereign.
“Lagos’s ratings are capped by the sovereign. A downgrade of the sovereign’s ratings would lead to a corresponding action on Lagos’s IDR. In the absence of a sovereign downgrade, an operating margin declining towards 30 per cent unfavourable changes in the national tax policy, debt rising beyond Fitch’s expectations of N350-N400 billion over the medium term and economic instability, even at the local level, could lead to a downgrade.
“A sovereign upgrade could be reflected by Lagos’s ratings, provided that improvements in budgetary performance result in debt levels at 1x the budget size (about N400billion). Further improvement of the local economy giving additional boost to internally generated revenues would also be positive for the ratings,” it stated.
Fitch Ratings recently downgraded Nigeria’s long-term foreign currency IDR to ‘B+’ from ‘BB-‘ as well as the country’s long-term local currency IDR to ‘BB-‘ from ‘BB’.
But the global rating agency had assigned a stable outlook to the country. Similarly, Nigeria’s Country Ceiling was revised down to ‘B+’ from ‘BB-‘ and the Short-Term Foreign-Currency IDR affirmed at ‘B’.
The agency with dual head office in New York and London had pointed out that the downgrade of Nigeria’s IDRs, among other things, was because its fiscal and external vulnerability had worsened due to a sharp fall in oil revenue and fiscal and monetary adjustments that were slow to take shape and insufficient to mitigate the impact of low global oil prices.