Egypt downgraded deeper into junk by S&P on currency squeeze
Egypt was downgraded further into junk territory by S&P Global Ratings, as the North African nation struggles with a severe shortage of hard currency.
S&P cut the country’s debt to B- from B, with a stable outlook, the ratings company said in a statement. The decision puts the country on par with nations like Bolivia, Angola and Iraq.
“The downgrade reflects the recurring delays to the implementation of monetary and structural reforms,” S&P said.
It said those delays are “exacerbating imbalances in the currency market, deteriorating the net foreign asset position of systemic banks, and delaying critical IMF disbursements and other multi- and bi-lateral financing.”
S&P lowered Egypt’s outlook to negative in April, saying risks had increased that its allies in the wealthy Gulf Arab states would delay or refuse to provide funds.
It reiterated that concern in Friday’s statement, saying the Gulf states are putting a greater emphasis on “conditionality and achieving economic returns” in their financing decisions.
The economic fallout of Russia’s invasion of Ukraine last year hammered Egypt’s finances, causing a rapid outflow of billions of dollars in foreign funds and leading inflation to soar.
Moody’s Investors Service this month lowered Egypt’s credit score for the second time this year, bringing it to one of the lowest rungs amid what it called “increasingly constrained” policy options to rebalance the economy without triggering social unrest.
Egypt is struggling to pass the International Monetary Fund’s delayed reviews of a $3 billion rescue program and bond investors are worried about a default. The Washington-based lender first wants to see authorities allow true flexibility in the currency.
The North African nation is in talks with the IMF on boosting its loan to over $5 billion, people familiar with the discussions told Bloomberg last week. Only a small portion of the $3 billion has been distributed so far.
The fund’s managing director, Kristalina Georgieva, said Egypt will “bleed” precious reserves unless it devalues the pound again.
But a currency move is politically difficult ahead of December elections, which President Abdel-Fattah El-Sisi is likely to win. In June, the president appeared to reject another devaluation, warning of the toll that faster inflation would take on Egypt’s 105 million people.
