Fitch Cuts Libya Rating on Political Instability

Fitch on Monday cut its credit rating for Libya one notch, to BBB, amid intense turmoil and increased political instability in the North African country. The ratings firm also said that it might cut Libya’s credit rating further if there is a “lack of political resolution” or an escalation in violence.

The ratings drop indicates Fitch believes there is an increased chance of Libya defaulting on its sovereign debt. Fitch has also reduced credit ratings on neighboring Egypt repeatedly in recent weeks on similar political and economic unrest.

“The downgrade reflects the eruption of political risk evidenced by the increasing momentum of the popular uprising,” said Fitch Director of Sovereign Ratings, Charles Seville.

Violence spread across Libya Monday as anti-government protesters demanded the ouster of leader Moammar Gadhafi.

Fitch also noted disruption to the country’s oil production could prompt further cuts to Libya’s credit rating. Libya’s main source of revenue is oil, and it produced 1.8 million barrels per day in 2009, according to estimates from the US Energy Administration.The possibility of volatility in Libya’s ability to produce oil has caused oil prices to spike to two-year highs.