Rating Release

Agusto & Co. hereby affirms the “Bbb-” rating assigned to the Edo State Government

The rating expires on 30 September 2024.

Agusto & Co. hereby affirms the “Bbb-” rating assigned to the Edo State Government (“Edo State”, “EDSG” or “the State”) to reflect the steady rise in the State’s share of centrally collected revenue, which is supported in part by the favourable global crude oil prices. The rating also underscores  DSG’s sustained infrastructure investments, evidenced by a healthy five-year average capital expenditure to revenue ratio of 46%, which should improve its revenue-generating potential. However, the rating is constrained by Edo State’s rising debt profile and the vulnerability of its finances to future currency depreciations given its significant exposure to foreign currency loans. This is in addition to the sensitivity of the State’s non-debt recurrent expenditure to macroeconomic headwinds and its declining internally generated revenue (IGR) to total revenue ratio. The rating also considers EDSG’s huge budget deficit, which could lead to further borrowings, as well as concerns over the deteriorating political climate, especially with the 2024 Governorship Election on the horizon.

Edo State has good arable land that supports large-scale farming (particularly cash crops like rubber and oil palm) and is blessed with huge deposits of natural resources such as crude oil and limestone, thus making it a strategic commercial hub for agro-processors and cement manufacturers in Nigeria. With the second tenure of the incumbent governor (Mr. Godwin Obaseki) set to elapse in November 2024, the State is witnessing a beehive of political activities toward electing a successor. Therefore, we expect the tensed political environment and ongoing electioneering to weigh heavily on the State’s internally generated revenue (IGR).