Cross River Receives 'B-' Rating from Fitch; Says Outlook Stable, IGR Improved

 Fitch Ratings has assigned Cross River State, Nigeria, a 'B-' Long-Term Foreign- and Local-Currency Issuer Default Rating (IDR) with a Stable Outlook, the agency announced yesterday. 

Fitch Ratings is a company that evaluates the financial health and creditworthiness of organizations, governments, or states, helping investors understand how risky it is to lend them money.

The state also received an 'AA-(nga)' National Long-Term Rating.

The rating reflects Cross River's heavy reliance on federal government transfers, which account for approximately 75% of its revenue. This dependency exposes the state to volatility, particularly due to the transfers' connection to crude oil sales. 

While the state has shown some progress in internally generated revenue (IGR), which comprises about 20% of total operating revenue, it remains below the Nigerian state average.

Fitch's assessment takes into account Cross River's debt profile, projecting an increase in the debt payback ratio to an average of 14x in 2026-2028, up from 3.3x in 2023. The debt-to-operating revenue ratio is expected to exceed 400%, with weak debt service coverage by operating balance.

The state's debt structure includes domestic debt, facilities sponsored by the federal government, and external debt, which nearly doubled in 2023 due to naira depreciation.

Cross River faces substantial spending needs to support local economic development, with over 25% of total expenditure allocated to the social sector and about 25% to economic development. The state also has ambitious capital expenditure plans, including a new airport and improved energy facilities.

Despite these challenges, Fitch's Stable Outlook is based on improving fiscal performance in 2023, supported by increased VAT and statutory allocations. The state's operating margins have ranged from 40% to 65% in recent years.

However, Cross River remains vulnerable to oil price fluctuations, which could impact federal transfers. The state also faces risks associated with its ambitious NGN0.6 trillion capital expenditure plan over the next five years and potential for increased debt due to currency depreciation and new borrowings.

This rating provides investors and stakeholders with a comprehensive view of Cross River State's financial position, highlighting both its strengths and areas of potential concern.