Fitch Ratings revised the outlook on Nigeria's long-term issuer default ratings to negative from stable, as macroeconomic risks from the Nigerian government's current policy framework arise amid a continuing real appreciation of the naira.

A sharp devaluation of the naira under the policy framework would trigger macroeconomic volatility and weaken Nigeria's key credit metrics including GDP per capita, the rating agency said as it affirmed the country's long- and short-term issuer default ratings at B+/B.

Fitch said the Central Bank of Nigeria has undertaken "unconventional and economically costly" policy measures to maintain a stable nominal exchange rate. These include attracting portfolio investments in short-term open market operations, or OMO, bills through high yields and hedging instruments offered to non-resident investors at low cost. This has resulted in foreign investors holding $17 billion in OMO bills representing 40% of foreign-currency reserves as of August-end.

The central bank's reliance on short-term financial inflows means that the country's liquid foreign assets "offer only a modest liquidity buffer against external shocks," the rating agency said.

Fitch said a downgrade is likely if there is an abrupt change in the exchange rate under the current policy framework, if government debt continues to rise and if any deterioration in the political and security situation affects oil production or economic activity for a prolonged period.

Meanwhile, stronger external finances, improved non-oil revenues and the implementation of structural and macroeconomic policy reforms could result in stabilizing Nigeria's credit outlook.