BEIJING -- Chinese credit rating agency Dagong Global on Wednesday downgraded the credit rating outlook for Vietnam from stable to negative.

The country's local and foreign currency sovereign credit ratings were downgraded from BB- to B+, the rating agency said.

The agency said the move reflects increasing difficulties in Vietnam's economic recovery, rising financial system risks, a backlog of financial deficit, and government debt and worsening balance of payments.

The agency expects the country's economic growth will slow down because of the soaring inflation and slow recovery of global economy. Vietnam's inflation hit a historical high of 22.2 percent in July. Meanwhile, its major trading partners have seen sluggish economic growth.

The agency forecasts the country's economic growth rate to reach 6 percent this year and 6.3 percent next year.

Dagong said government debt will rise to 53 percent of the country's gross domestic product (GDP) this year and 53.4 percent in 2012 due to high budget deficits.

The agency said the country's state foreign reserves are significantly insufficient as its current accounts are frequently in the red.

By the end of 2010, Vietnam's foreign reserves totaled$12.4 billion, equivalent to its imports of less than two months, according to Dagong.