Fitch Ratings has cut its rating on Libya for the second time in just over a week, citing the increasingly turbulent situation that has claimed hundreds of lives in the North African country and halved its valuable oil exports.
The agency on Tuesday reduced its rating on Libya by a massive three notches to BB from BBB. That means Libya's rating is considered junk status — a low grade for a country with no government debt.
"The downgrades reflect Fitch's view that the increasingly chaotic political and economic conditions in Libya are no longer consistent with an investment grade rating," said Charles Seville, director in Fitch's sovereignratings unit.
"In addition, a significant portion of the sovereign's substantial foreign assets, which were key in underpinning its previous rating, have now been frozen by international sanctions," he added.
Tuesday's downgrade follows on from last week's reduction, when Fitch warned that it may take further action if there was no clear political resolution or reduction in violence.
Fitch said yet another downgrade could be in the offing given the highly uncertain situation.
Even though the United Nations has imposed sanctions on the regime of Moammar Gadhafi, the longtime leader appears to be hunkering down in the capital Tripoli even though he has effectively lost control of half the country.
Fitch added that disruption to the country's oil production and to the wider economy is also increasing. Oil and gas output is thought to account for over half of Libya's national income, 90 percent of its current account receipts and over 80 percent of government revenues.
In normal circumstances, Libya produces a little under 2 percent of the world's daily oil output and has the largest proven oil reserves in the whole of Africa.
Fitch said it seems that Libya's oil production has been cut in half, that some of the country's oil installations may be at risk of long-lasting damage and key foreign workers have left the country en masse.
The agency has had a rating on Libya for only a couple of years as part of the country's efforts to open up its economy after it improved its relationship with Western governments.
Rival Standard & Poor's has also downgraded Libya's rating over the past week.