News / Middle East

    Moody's Downgrades Egypt's Credit Rating

    Reuters
    Moody's cut Egypt's credit rating on Thursday, citing unsettled political conditions and public finances, which it said raised the chance of a default within five years to nearly 40 percent.

    The Egyptian economy has been in crisis since the overthrow of Hosni Mubarak in 2011, with Islamist President Mohamed Morsi's cash-strapped government grappling with sliding currency reserves, dwindling tourism, a soaring budget deficit and a wave of often violent street protests.

    "The sustained deterioration in Egypt's external payments position and government finances have reached a level at which the country's vulnerability to economic or political shocks has widened and the risk of default has consequently increased," Moody's said in a statement.

    It cut the country's credit rating by one notch from B3 to Caa1, which it said meant it now sees nearly a 10 percent chance of Egypt defaulting on its debt over the next year, and slightly less than a 40 percent chance of a default within five years.

    It was Moody's sixth downgrade of Egypt since January 2011, at the height of the uprising that toppled Mubarak soon after, and added pressure on Cairo as it seeks to secure an IMF loan to shore up its finances. The new rating carries a negative outlook.

    "Egypt's fiscal position is very worrying, the deficit has been widening since the start of the fiscal year... This has been exacerbated by rising subsidy expenditure," said Jason Turvey, assistant economist at Capital Economics in London. "If the government secures an IMF deal that should provide a fiscal backstop should the situation deteriorate."

    Morsi's government said on Tuesday that it hopes to sign a deal on a $4.8 billion IMF loan by the end of June and receive the first round of cash by then.

    The Egyptian pound has depreciated by nine percent against the dollar since late last year, pushing foreign reserves down to dangerously low levels as the government was forced to defend the currency.

    The weak currency also has boosted inflation above eight percent, prompting the central bank on Thursday to raise interest rates by a hefty 50 basis points.

    Sukuk issue

    Moody's rating on Egypt is lower than other ratings agencies and with a negative outlook, it could be cut further.

    Analysts, however, were not too surprised by the downgrade. Uncertainty about whether Egypt will secure an IMF loan, which will require tough austerity measures Cairo is reluctant to introduce for fear of further unrest, has dragged on for months.

    Economic turbulence is being heightened by political uncertainty as it is still unclear when a new lower house of parliament will be installed.

    "Moody's is reacting to the uncertainty over the IMF loan," said Souheir Asba, emerging markets strategist at Societe Generale in London. "Politically speaking, too, it's not getting better, nor is the external payment position. The Egyptian pound is depreciating, and they will have a hard time financing themselves."

    In its plan drawn up for the IMF, the government forecast the budget deficit would hit 12.3 percent of annual economic output in the year to June unless it made urgent reforms.

    On Tuesday, it said it would start rationing subsidized bread, seen as a risky step to curb its budget deficit by restricting cheap supplies to the poor.

    The government hopes to issue its first Islamic bonds after regulations on sukuk sales are published in June, it said on Thursday. That would help it replenish its low foreign currency reserves, which dropped to the critical level of $13.5 billion in February.

    Egypt is rated one notch higher at B-minus with a negative outlook by Standard & Poor's, while Fitch Ratings has Egypt two notches higher at B with a negative outlook.

    "It's hard to say how much the downgrades really matter because, after all, Egypt is already considered at junk status," said Turvey.

    You May Like

    Rubio Looks to Surge in New Hampshire

    Republican presidential candidate has moved into second place in several recent surveys and appears to be gaining ground on longtime frontrunner Donald Trump

    UN Calls for Global Ban on Female Genital Mutilation

    Recent UNICEF report finds at least 200 million girls and women alive today have undergone female genital mutilation in 30 countries

    UN Pilots New Peace Approach in CAR

    Approach launched in northern town of Kaga Bandoro, where former combatants of mainly Muslim Seleka armed group and Christian and animist anti-Balaka movement are being paid to do community work

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    German Artists to Memorialize Refugees With Life Jacket Exhibiti
    X
    Hamada Elsaram
    February 05, 2016 4:30 PM
    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video German Artists to Memorialize Refugees With Life Jacket Exhibit

    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video E-readers Help Ease Africa's Book Shortage

    Millions of people in Africa can't read, and there's a chronic shortage of books. A non-profit organization called Worldreader is trying to help change all that one e-reader at a time. VOA’s Deborah Block tells us about a girls' school in Nairobi, Kenya where Worldreader is making a difference.
    Video

    Video Genius Lets World Share Its Knowledge

    Inspired by crowdsourcing companies like Wikipedia, Genius allows anyone to edit anything on the web, using its web annotation tool
    Video

    Video Former Drug CEO Martin Shkreli Angers US Lawmakers

    A former U.S. pharmaceutical business executive has angered lawmakers by refusing to explain why he raised the price of a life-saving pill by 5,000 percent. Martin Shkreli was removed from a congressional hearing on Thursday after citing his Fifth Amendment right to stay silent. Zlatica Hoke has more.
    Video

    Video Super Bowl TV Commercials are Super Business for Advertisers

    The Super Bowl, the championship clash between the two top teams in American Football, is the most-watched sporting event of the year, and advertisers are lining up and paying big bucks to get their commercials on the air. In fact, the TV commercials during the Super Bowl have become one of the most anticipated and popular features of the event. VOA's Brian Allen has a sneak peek of what you can expect to see when the big game goes to commercial break, and the real entertainment begins.
    Video

    Video In Philippines, Mixed Feelings About Greater US Military Presence

    In the Philippines, some who will be directly affected by a recent Supreme Court decision clearing the way for more United States troop visits are having mixed reactions.  The increased rotations come at a time when the Philippines is trying to build up its military in the face of growing maritime assertiveness from China.  From Bahile, Palawan on the coast of the South China Sea, Simone Orendain has this story.
    Video

    Video Microcephaly's Connection to Zika: Guilty Until Proven Innocent

    The Zika virus rarely causes problems for the people who get it, but it seems to be having a devastating impact on babies whose mothers are infected with Zika. VOA's Carol Pearson has more.
    Video

    Video Solar Innovation Provides Cheap, Clean Energy to Kenya Residents

    In Kenya, a company called M-Kopa Solar is providing clean energy to more than 300,000 homes across East Africa by allowing customers to "pay-as-you-go" via their cell phones. As Lenny Ruvaga reports from Kangemi, customers pay a small deposit for a solar unit and then pay less than a dollar a day to get clean energy to light up their homes or businesses.
    Video

    Video Stunning Artworks Attract Record Crowds, Thanks to Social Media

    A new exhibit at the oldest art museum in America is shattering attendance records. Thousands of visitors are lining up to see nine giant works of art that have gotten a much-deserved shot of viral marketing. The 150-year-old Smithsonian American Art Museum has never had a response quite like this. VOA's Julie Taboh reports.
    Video

    Video Apprenticeships Put Americans on Path Back to Work

    Trying to get more people into the U.S. workforce, the Obama administration last year announced $175 million in grants towards apprenticeship programs. VOA White House correspondent Aru Pande went inside one training center outside of Washington that has gained national recognition for helping put people on the path to employment.
    Video

    Video New Material May Reduce Concussion Effects

    As the 2016 National Football League season reaches its summit at the Super Bowl this coming Sunday (2/7), scientists are trying to learn how to more effectively protect football players from dangerous and damaging concussions. Researchers at Cardiff and Cambridge Universities say their origami-based material may solve the problem. VOA’s George Putic reports.
    Video

    Video Saudi Arabian Women's Sports Chip Away at Stereotypes

    Saudi Arabian female athletes say that sports are on the front line of busting traditions that quash women’s voices, both locally and internationally. In their hometown of Jeddah, a group of basketball players say that by connecting sports to health issues, they are encouraging women and girls to get out of their homes and participate in public life. VOA’s Heather Murdock reports.
    Video

    Video A Year Later, Fortunes Mixed for Syrians Forging New Lives in Berlin

    In April of last year, VOA followed the progress of six young Syrian refugees -- four brothers and their two friends -- as they made their way from Libya to Italy by boat, and eventually to Germany. Reporter Henry Ridgwell caught up with the refugees again in Berlin, as they struggle to forge new lives amid the turmoil of Europe's refugee crisis.
    Video

    Video Zika Virus May be Hard to Stop

    With the Zika virus spreading rapidly, the World Health Organization Monday declared Zika a global health emergency. As Alberto Pimienta reports, for many governments and experts, the worst is yet to come.