Fitch Cuts Egypt's Rating to B-Plus on Political Crisis

Fitch Ratings downgraded Egypt's sovereign credit rating deeper into junk status, citing the rising political crisis after the nation's Supreme Constitutional court annulled parliamentary elections. The rating, cut by one notch to B-plus from BB-minus, has a negative outlook, meaning there is a greater than 50 per cent chance of more downgrades in the next 12 to 18 months.

The court's ruling to dissolve the Islamist-led parliament aggravated an already troubled transition toward democracy after the overthrow of Hosni Mubarak, who held power for 30 years. "Whatever the ultimate outcome of these events, the political and policy-making process has been complicated, delaying the likely implementation of the comprehensive macroeconomic and structural reforms needed to kick-start recovery and ease financing strains," said Richard Fox, head sovereign analyst for Middle East and Africa at Fitch.

The dissolution of parliament robs the Islamists of their commanding position gained in elections earlier this year. The Muslim Brotherhood aimed to repeat that success with their candidate in Saturday and Sunday's presidential run-off vote. The vote pits Ahmed Shafik, Mubarak's last prime minister, against Muslim Brotherhood candidate Mohamed Mursi. Islamists called the court ruling a "coup" without tanks.

"Such political uncertainty could weaken confidence and heighten near-term economic and financial pressures facing Egypt," Fitch said. "Nor is it conducive to the taking of critical macroeconomic and structural policy decisions required to catalyze Egypt's economic recovery, alleviate budget and external financing strains and return the public finances to a sustainable path," the firm said.

Standard & Poor's rates Egypt one notch lower than Fitch at B, with a negative outlook. Moody's Investors Service rates the Arab world's most populous state at a similar level of B2, and on watch for a downgrade. For all of Reuters top news on Egypt's presidential election and ensuing turmoil, click on.