Fitch Ratings downgraded Nigeria's long-term foreign-currency issuer default rating to B from B+ citing intensified pressure on the country's external finances and government debt due to falling energy prices and the economic shock from the coronavirus pandemic. The outlook is negative.

The recent oil price slump poses a risk to Nigeria's already overvalued currency, the naira, according to the rating agency. The central bank's policy actions would be insufficient in addressing deteriorating external imbalances, Fitch added, noting that hydrocarbon revenues represented about 57% of Nigeria's current-account proceeds and nearly half of fiscal revenue over the past three years.

"Reversal of international portfolio inflows in a context of a spike in global risk aversion could magnify the impact of the oil price shock," Fitch said. The country's stock of portfolio investments in short-term naira debt securities totaled 6.9% of GDP and around 72% of foreign-currency reserves at the end of 2019.

Amid a lack of adjustments to the exchange rate, portfolio outflows and current account deficit, the economy's foreign-currency reserves would decline to 2.5 months of current account payments at the end of the year, the lowest level since 1994, the rating agency said. The current account deficit is expected to expand to a record 4.9% of GDP in 2020 from 4.2% of GDP in 2019, before shrinking to 1.8% in 2021 amid oil price recovery.

Fitch projects the general government deficit to rise to around 5.8% of GDP in 2020 from 3.8% the prior year. At this level, the general government debt would represent 511% of revenues in the year, up from 371% in 2019.

The Nigerian economy is forecast to contract 1% in 2020 before rebounding 4.4% in 2021 amid expected stabilization of economic activity and oil production, Fitch said. However, "risks around our baseline are tilted to the downside given uncertainty regarding the spread of the pandemic," it added.