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Fitch Ratings has downgraded the outlook of Nigeria’s credit ratings from stable to negative. However, the ratings agency retained the country’s credit rating at B+, according to a statement released on Wednesday.

The New York-based ratings firm said its action was driven by Nigeria’s deteriorating macroeconomic conditions evidenced by tight foreign currency liquidity, low oil production, and the wide spread between the official and parallel markets rates of the naira.

“We expect a limited economic recovery in 2017 with growth of 1.5 percent, well below the 2011 to 2015 annual growth average of 4.8 percent,” the ratings agency said. “The non-oil economy will continue to be constrained by tight foreign exchange liquidity. Inflationary pressures are high with year-on-year inflation increased to 18.5 percent in December.”

Given that Nigeria’s overall government debt stood at 281 percent of revenues in 2016, Fitch said it expects the country’s low revenue profile to pose risks to debt sustainability.

“Nigeria's government debt is 77 percent denominated in local currency, which makes it less susceptible to exchange rate risk, but the share of foreign currency debt is increasing,” the ratings agency said.

With the rebound in oil prices, Fitch said it expects Nigeria to experience a recovery in oil revenues, but the country will still struggle to raise non-oil revenues owing to implementation and compliance issues.

“Import and excise duties have experienced a boost from the depreciation of the naira, but corporate taxes and the VAT will continue to underperform, owing to issues with implementation and compliance,” the ratings agency said.

Nigeria’s weakening economy has also caused problems for banks, Fitch said, given that they experienced rising non-performing loans – which rose to 11.7 percent of gross loans as of June 2016, from 5.3 percent at the end as of December 2015.

“Tight foreign currency liquidity has also led to some Nigerian banks experiencing difficulty in meeting their trade finance obligations which were either extended or refinanced with international correspondent banks,” said Fitch.

The ratings agency said it decided to retain Nigeria’s long-term credit rating at B+ partly because the country’s fiscal policy has been predicated on sourcing external funding to finance increases in capital spending.

“Fitch does not expect the government to fully execute the capital spending envisaged in the 2017 budget, but it will have to finance an overall federal government deficit of approximately N2.6 trillion,” the ratings agency said.

As the security situation in the Niger Delta improves, Fitch said it expects the country’s oil production to average 2.2 million barrels of oil per day in 2017. This could lead to an improvement in the economy this year as the government executes capital expenditures with the increased oil revenues, the ratings agency said.