S&P downgrades Egypt credit rating on ‘elevated’ tensions

Rating agency Standard and Poor’s on Monday downgraded Egypt’s long-term credit rating because of “elevated” tensions over its political crisis, and warned it could be lowered further.

The country’s long-term rating was lowered to ‘B-’ from ‘B’ because the turmoil has “weakened Egypt’s institutional framework, and the increasingly polarized political discourse could diminish the effectiveness of policy-making,” AFP reported the agency as saying.

“A further downgrade is possible if a significant worsening of the domestic political situation results in a sharp deterioration of economic indicators such as foreign exchange reserves or the government’s deficit,” it said.

Egypt’s economy, once a vibrant opportunity for investors, was brought low by the early 2011 revolution that ousted Hosni Mubarak, ruler for the previous three decades.

The uncertainty has not improved under President Mohammed Mursi, who came to power in June on the back of support for his Muslim Brotherhood and other Islamists.

Agreement on a $4.8 billion loan from the International Monetary Fund was put on hold this month because of the political impasse Mursi has found himself in amid fierce opposition protests.

The IMF money is needed to prevent a collapse of Egypt’s currency. The country’s central bank foreign reserves have more than halved since Mubarak’s overthrow to less than $15 billion.

“The downgrade reflects our opinion that political and social tensions in Egypt have escalated and are likely to remain at elevated levels over the medium term,” Standard and Poor’s said.

The political polarization will likely weaken international consensus on extending credit to Egypt, it said.

“We expect political tensions to remain elevated, with no clear indication that rival factions will be brought to a point at which they can contribute to addressing Egypt’s economic, fiscal, and external challenges,” the agency said.

The agency’s short-term rating for Egypt was maintained at ‘B’ but with a negative outlook.

Meanwhile, according to Reuters, Egypt’s central bank, responding to what it said were market rumors, said on Monday that it was taking all steps needed to safeguard deposits in Egyptian banks whether denominated in local or foreign currencies.

“The Central Bank of Egypt is taking all necessary steps and measures to preserve the stability and security of the banking sector in Egypt and depositor funds,” the bank said in an emailed statement.

The bank said it was responding to public rumors. Some Egyptians have said recently they had withdrawn their funds from banks out of concern they would be frozen by the authorities.