Standard & Poor Cuts Egypt's Rating on Political Strife

Standard & Poors', the leading credit-ratings agency, decided to cut Egypt's long-term rating and said another cut was possible if political turbulence worsened, undermining the country's ability to make hard choices on public finances.

The agency reduced Egypt's long-term sovereign rating to 'B-' from 'B', but left its short-term rating at 'B' for both foreign- and local-currency debt. "The negative outlook reflects our view that 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," S&P said.

If the current polarisation between the Muslim Brotherhood and other political forces persist, the "broad-based domestic and international support," which the International Monetary Fund (IMF) views as "crucial for the successful implementation of the planned policies" under the programme could remain out of reach, according to S&P's report. Another downgrade is likely if the Egyptian government fails in preventing further deterioration in Egypt's fiscal situation.

Moody's, another credit-ratings agency, also pointed to the possibility of downgrading Egypt's credit rating due to the postponement of a long-awaited IMF loan. The Egyptian economy suffered significant losses since the start of an impasse triggered by President Morsi's presidential decree on 21 November. A political faceoff ensued between Islamists and non-Islamist forces around a controversial draft constitution that was approved on Saturday by national referendum.