Rating Release
Agusto & Co. hereby affirms the “Bbb-“ rating assigned to the Edo State Government
The rating expires on 30 September 2023.
Agusto & Co. hereby affirms the “Bbb-“ rating assigned to the Edo State Government (“Edo State”, “EDSG” or “the State”) to reflect stability in the State’s share of centrally collected revenue and internally generated revenue (IGR) after the coronavirus-induced lull in 2020. This is in addition to the sustained infrastructure investments, evidenced by a healthy five-year average capital expenditure to revenue ratio of 46%, which have continued to improve the State’s revenue-generating potential. The rating affirmation is further supported by the relative stability in the political climate following the re-election of Mr. Godwin Obaseki for the second term in office, which have continued to drive sustainable development and policy coherence across the State. However, the rating is constrained by EDSG’s rising debt profile, which has continued to push its debt service burden upwards, as well as the potential risk of high overhead costs owing to headwinds of high inflation and currency devaluation. We also consider the State’s continuous reliance on centrally collected oil revenues, whose future trajectory remains uncertain, as a major risk area.
Edo State has good arable land that supports large scale farming (particularly cash crops like rubber and oil palm produce) 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. The political environment in the State has witnessed an uneasy calm since the series of crises that trailed the re-election of the incumbent governor – Mr. Godwin Obaseki in 2020. Considering that Edo State is one of the states with off-cycle governorship elections, we expect the political disruptions that may arise from the 2023 electioneering to have a very minimal impact on the State.
The opinions expressed in this rating release do not represent investment or other advice and should therefore not be construed as such. Visit www.agusto.com for further information.