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

Philippines, Muslim Rebels Try to Salvage Peace Pact

Peace process faces major setback after botched military operation to find terrorists results in bloody gunbattle between government forces, Moro Islamic Liberation Front fighters More

Republicans Expect Long, Expensive Presidential Battle

Political strategist says eventual winner will be one who can put together strongest coalition of various conservative groups that make up Republican Party More

Video New Wheelchair Is Easier to Use, Increases Mobility

Engineers have come up with a lever-operated design that makes use of easily accessible bicycle technology More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Liberia's Almost Last Ebola Patient Grateful but Still Grievingi
X
Benno Muchler
March 26, 2015 3:41 PM
Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video US, South Korea Conduct Joint Military Exercises

The Eighth U.S. Army Division and the Eighth Republic of Korea Mechanized Infantry Division put on a well orchestrated show of force for the media this week during their joint military training exercises in South Korea. VOA’s Seoul correspondent Brian Padden was there and reports the soldiers were well disciplined both in conducting a complex live fire exercise and in staying on message with the press.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.
Video

Video Young Filmmakers Shine Spotlight on Giving Back

A group of student filmmakers from across the United States joined President Barack Obama at the White House this month for the second annual White House Student Film Festival. Fifteen short films were officially selected from more than 1,500 entries by students aged 6 through 18. The filmmakers and their families then joined the president and a group of celebrities for a screening of their films. VOA’s Julie Taboh reports.
Video

Video VOA Exclusive: Interview with Afghan President Ashraf Ghani

Afghan President Ashraf Ghani, during his first visit as president to Washington, gave a one-on-one interview with VOA Afghan Service reporter Said Suleiman Ashna, about his request for a change in U.S. troop levels, the threat from the Islamic State, and repairing relations with the United States and Pakistan. The interview was held at Blair House, late Sunday, in Pashto.
Video

Video California Science Center Tells Story of Dead Sea Scrolls

The ancient manuscripts were uncovered in the mid-20th century, and they are still yielding clues about life and religious beliefs in ancient Israel. As VOA's Mike O'Sullivan reports, an exhibit in Los Angeles shows how modern science is bringing the history of these ancient documents to life.
Video

Video Angelina Jolie Takes Another Bold Step

Hollywood actress and filmmaker Angelina Jolie has revealed she had her ovaries and fallopian tubes removed to lower her odds of getting cancer. Doctors say the huge publicity over her decision will help raise awareness about the importance of cancer screening. VOA’s George Putic has more

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More