Standard & Poor's became the second credit rating agency in as many days to downgrade Libya as the oil-rich North African country reels from violence which has reportedly left over 200 people dead.
The agency said Tuesday that it is cutting its rating on Libya to BBB-plus from A-minus, and warned that another downgrade is possible some time in the next three months.
S&P said its action reflects a reappraisal of political risks in Libya and that it expects the outbreaks of unrest to persist.
"A more protracted political crisis, which we consider likely to greatly impair Libya's medium-term growth prospects, could lead us to lower the long- and short-term ratings further," S&P said. "In such a turn of events, and depending on the severity of the crisis, the ratings might be lowered by one or more notches."
In contrast, S&P said a rapid resolution of the domestic unrest, with limited economic impact, could see the current rating being affirmed.
Like Fitch, which cut its credit grade for Libya on Monday, S&P is worried at the lack of a constitution, noting that longtime leader Moammar Gadhafi holds no constitutional position.
Though Libya has no outstanding debt, its credit ratings are an indication of its standing in global financial markets at a time when the Gadhafi regime has been trying to open up the economy to investment.
S&P said the protesters appear to have many grievances, including demands for improved employment opportunities and living standards, increased political participation, as well as opposition to the regime.
Though the agency said Libya has "significant flexibility" to increase social spending, given that it ran a surplus of around 11.5 percent of national income in 2010, it warned the risks to the country's economic stability will grow if there isn't a swift resolution to the current crisis.
Libya is hugely reliant on its oil industry for its economic fortunes, and with a number of oil companies, including Britain's BP and Italy's ENI, evacuating or preparing to withdraw staff, the outlook is uncertain.
Libya pumps out around 1.7 million barrels of oil, or oil equivalents, a day, or a little under 2 percent of global daily output. The OPEC country also sits atop the biggest oil reserves in the whole of Africa.
With so much uncertainty surrounding a large chunk of the world's daily oil production, oil prices surged. Benchmark crude for March delivery was up $6.38 a barrel, or 7.4 percent, at $92.56 in electronic trading on the New York Mercantile Exchange.
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