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MENAFN - Khaleej Times - 25/12/2012

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(MENAFN - Khaleej Times) Egypt's long-term credit rating was cut to the same junk level as Greece by Standard & Poor's as escalating political tension in the North African nation may render aid from the International Monetary Fund "inactive."

The most-populous Arab country's rating was lowered by one level to B-, six steps below investment grade, with a negative outlook, S&P said in a statement on Monday.

The rating, which is also on par with Pakistan, may face more downgrades should political instability result "in a sharp deterioration of economic indicators such as foreign exchange reserves or the government's deficit," S&P said.

S&P has pared Egypt's rating five times since the start of a popular revolt almost two years. The country's credit risk jumped this month ahead of a constitutional vote that has intensified divisions between the ruling party and their opponents.

The unrest led President Mohamed Mursi's government to ask the IMF to delay a decision on a 4.8 billion loan, after getting the initial go-ahead last month.

"The increased polarisation between the Muslim Brotherhood's Freedom and Justice Party and sections of the population is likely to weaken the sovereign's ability to deliver sustainable public finances, promote balanced growth and respond to further economic or political shocks," S&P said.

The cost of protecting Egypt's debt against default for five years using credit default swaps surged 99 basis points this month to 490, according to CMA, which is owned by McGraw-Hill and compiles prices quoted by dealers in the privately negotiated market. That ranks it among the world's 10 riskiest borrowers, ahead of Iraq and Lebanon.

The S&P rating cut "is pretty hard to justify; It doesn't seem at all sensible that Greece should have the same rating as Egypt," Gabriel Sterne, a fixed income economist at Exotix Holdings in London, said by phone on Monday.

"Egypt got the government and constitution it voted for. So like it or not, the most-stable outcome is reflected in the will of the people."


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