CAIRO - Credit-ratings agency Moody’s said on Tuesday it has downgraded Egypt’s government bond ratings by one notch from B2 to B3, citing the intensification of civil unrest and sliding foreign exchange reserves.

Moody’s also said it is maintaining the rating on review for further possible downgrade.

It said the main factor behind Tuesday’s one-notch downgrade “is the country’s ongoing unsettled political conditions and recent escalation of civil unrest in the form of violent clashes between protesters and security forces, resulting in many deaths.” It said the second key factor underlying the downgrade is the weakening in Egypt’s strained external payments position. It said in January the country’s international reserves dropped by $1.4b to $13.6 billion, the largest decline in 12 months “and a sharp departure from the semblance of stability seen throughout most of 2012.” “Moody’s will monitor the evolution of the above factors to assess whether to implement a further downgrade of Egypt’s government bond rating or to confirm it at its newly adjusted B3 level,” the agency said.

Egypt has been hit by violent political unrest in recent weeks.

On Monday, fresh clashes broke out between police and protesters outside the presidential palace, as the opposition rallied to mark the second anniversary of Hosni Mubarak’s overthrow.

Deadly clashes that swept Suez Canal cities last month left dozens of protesters dead, prompting Morsi to declare a state of emergency and curfews in three provinces.