There is a need to carry out a proper credit rating assessment for the local government areas in order to make them investment-savvy, DataPro, a leading Compliance Solutions, Rating Agency and Data Protection Compliance Organisation (DPCO) in Nigeria, has said..
In a statement issued on its website at the weekend, the firm, while making a case for the inclusion of Councils in the rating spectrum said, “After two decades of relying on piecemeal funds from federal allocations filtered through state governors, Local Governments in Nigeria now have financial autonomy. In a landmark decision, the Supreme Court unanimously upheld a suit by the Federal Government to bolster the independence of Nigeria’s 774 Local Government Areas.”
This new arrangement, it stressed, “empowers the Accountant-General of the Federation to bypass State Governments in the monthly disbursement of federal allocations directly to Local Governments. With this financial independence, LGs are now expected to focus on building and maintaining good creditworthiness.
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“Strong financial health is crucial for Local Governments to support or improve their credit ratings, as these ratings provide investors with insights into the risk associated with investing in a LG’s debt. For instance, in the US, Huntington Municipal (equivalent to a Local Government in Nigeria) recently saw its city bond rating upgraded to ‘AAA’, thanks to robust financial management practices and conservative budgeting. An AAA rating, the highest possible for any municipality, indicates a low risk of default.”
DataPro therefore expressly stated that “Credit rating agencies evaluate Local Governments’ ability to maintain fiscal sustainability over the medium and long term. They assess the balance between revenue and expenditure, ensuring that the revenues received or collected are adequate to cover expenditure mandates. Key factors considered include transparency, accountability, and the regulation of public-sector accounting systems, as well as standards of financial reporting and planning.