GCR Affirms Lagos State Government Ratings, Outlook Stable
GCR Ratings has maintained Lagos State Government’s national scale long-term and short-term issuer ratings at AA-(NG) and A1+(NG), respectively. The agency also affirmed the national scale long-term issue rating of AA-(NG) for various bond issuances under the government’s programmes. In addition, the outlook remains stable for Lagos State’s ratings.
The reaffirmation reflects GCR’s continued confidence in the state’s creditworthiness and financial stability. The government of Lagos State is committed to maintaining strong fiscal discipline and prudent financial management practices.
According to GCR, the ratings of Lagos State Government underscore its robust and well diversified economy, which supports strong internally generated revenue (IGR) and financial autonomy with limited reliance on federal transfers.
However, the ratings are constrained by infrastructural backlogs, strained socioeconomic indices and weak leverage metrics due to elevated borrowing and downside currency risk.
Lagos State is Nigeria’s commercial and economic hub, with a diverse and robust internal economy contributing about 20% of the national GDP. The state’s economic landscape is dominated by a buoyant services industry accounting for about 90% of economic output.
The strong economic base has positioned the state as the top investment destination in Nigeria, with higher wealth levels as indicated by GDP per capital trending above the national average. Lagos State provides economic and social opportunities for Nigerians, which continues to drive an influx of migrants.
This trend has placed substantial pressure on the existing infrastructure, with the backlog persistently widening and causing weaker socio-economic indices relative to the national average.
“Nevertheless, we have factored in the state’s accelerated capital spending, as spend on critical infrastructural projects almost doubled to N1,077 billion in fiscal year 2024 at a budget implementation rate of 93% (fiscal 2023: 75%).
“We expect the state to sustain the capex momentum supported by strong internal cash generating capacity and access to a diverse external funding base”, GCR Ratings analyst said.
Lagos state has reported consistently strong IGR progression, reflecting the broad tax base, with limited reliance on volatile federal transfers compared to peers.
IGR increased by 105% to c. N2 trillion in the year to 31 December 2024 on the back of improved collection efficiency. Likewise, the state earned higher value added tax (VAT) inflows from the general price increase and the rebound in economic activity.
Federal transfers were also bolstered by once-off foreign exchange gains and infrastructural receipts from the national government.
The strong revenue growth is balanced against the notable concentration to the top 10 taxpayers that account for about 25% of IGR as of May 2025 from 21.1% in 2024.
“We expect IGR to remain robust, with personal income tax as the main contributor, although there is scope to increase the contribution from property tax (land use charge) over the medium term”.
Operating surplus remains strong, at a margin of 60.3% in 2024 from 51.1% in 2023. Despite inflationary pressure, the increased scale of activities and the implementation of higher minimum wage recurrent expenditure has been.
The wider operating surplus has created fiscal headroom for a larger proportion of capital projects to be financed internally.
Lagos State has relied on borrowings to finance infrastructural development over the review period, leveraging its access to local and international financiers, as well as the Nigerian capital market.
In 2024, total debt (including lease liabilities) spiked by 32.9% to N2.9 trillion largely due to the adverse foreign exchange movement.
However, the impact of the increased debt was absorbed by the strong earnings performance, supporting firmer leverage metrics.
As 69% of gross debt is foreign currency denominated, foreign currency exposure is a major risk, although ratings analysts said they expect a more stable exchange rate over the outlook period.
In addition, the state is also exposed to interest rate risk from bank loans, but this is somewhat moderated by the long-standing funding relationships with the banks.
“We have factored into the leverage assessment, the outstanding balance of N59.6 billion in respect of the loan raised by Voda Infrastructure Management Limited for two critical state infrastructure projects”.
GCR said Lagos State is the primary repayment source for these loans and provides full credit guarantees on it. The state intends to raise additional debt in the near term, but this would be offset by repayments over the same period, with a modest net increase in gross debt.
Overall, ratings analysts expect debt metrics to remain firm over the outlook period.
The liquidity assessment remains negative to the ratings based on our estimate of liquidity sources versus uses coverage of 1.07x over the 21-month period to 31 December 2026.
Nevertheless, cash holdings of N350 billion as at 31 March 2025 is sufficient to cover near-term debt maturities of N243 billion.
“We also expect further liquidity support from operating cash flow and additional inflow of N300 billion in new debt expected in the near term.
“The proceeds of the new debt issuance would be applied to partly fund ongoing capital projects. However, we expect capital projects to be cautiously executed depending on the availability of funds”.
GCR noted the state’s well-established funding relationships with leading local and international financial institutions and the local capital market should continue to support access to required funding.
“Lagos State’s existing bonds comprise series 2 (tranches II and IV), series 3 and series 4 issued under the N500 billion bond issuance programme 3 as well as series I fixed rate bonds and series II forward-ijarah sukuk under its N1 trillion hybrid bond issuance programme 4.
2The bonds and sukuk issues constitute direct, unconditional, unsubordinated, senior and unsecured obligations of Lagos State and rank pari-passu in all respects with all other bonds issued by Lagos State.
“The payment obligations on the bonds and sukuk are serviced through monthly transfers into the sinking fund account (SFA) from the consolidated debt service account (CDSA) and the state’s monthly federal allocations through an irrevocable standing payment order (ISPO)) approved by the Federal Ministry of Finance.
“Based on our analysis, the expected inflows into the SFA, will only provide 1x coverage of semi-annual interest payments during the moratorium period and 1x cumulative debt service after the moratorium.
“As such, there is no additional credit enhancement offered by the contemplated inflows and thus the long-term ratings of the bonds and sukuk are equalised to the long term senior unsecured rating of Lagos State.
“We have reviewed the trustees report dated 31 May 2025 and noted that the state has complied with the terms and conditions of the respective series trust deeds in respect of the payment obligations.
“Being senior unsecured debt, the bonds bear the same probability of default as the issuer/sponsor and would reflect similar recovery prospects to senior unsecured creditors in the event of a default.
“As such, the long-term rating of the respective bonds and the sukuk is equalised with Lagos State’s long term senior unsecured entity rating”.
The stable outlook reflects ratings analysts’ opinion that Lagos State will continue to achieve sound operating performance that supports capital project implementation and allows for debt service costs to be adequately covered. #GCR Affirms Lagos State Government Ratings, Outlook Stable UK Lowers Voting Age to 16 in Landmark Electoral Reform
