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Moody’s cuts Egypt’s rating on ‘unsettled’ political conditions
Reuters
An Egyptian policeman directs the traffic in front of the Egyptian Central Bank offices in Cairo, Egypt, Sunday, Jan. 6, 2013. (AP Photo/Nasser Nasser)
An Egyptian policeman directs the traffic in front of the Egyptian Central Bank offices in Cairo, Egypt, Sunday, Jan. 6, 2013. (AP Photo/Nasser Nasser)
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NEW YORK: Moody’s Investors Service Thursday downgraded Egypt’s sovereign foreign currency credit rating to Caa1 from B3, citing unsettled political conditions, and said risks of a default have increased.

Egypt’s economy has been in crisis since the 2011 overthrow of Hosni Mubarak, with Islamist President Mohammad Mursi’s cash-strapped government grappling with sliding currency reserves, dwindling tourism, a soaring budget deficit and a wave of often violent street protests.

“More than two years into the Egyptian revolution, the continued unsettled political conditions have significantly weakened Egypt’s economy,” Moody’s said in a statement.

The Egyptian government’s inability to secure financing from the International Monetary Fund has exacerbated a lack of predictability in the Middle East nation’s economy and fiscal policies.

The outlook on the credit is negative, Moody’s said. Egypt is rated one notch higher at B-minus with a negative outlook by Standard & Poor’s while Fitch Ratings has the country two notches higher at B with a negative outlook.

“The sustained deterioration in Egypt’s external payments position and government finances have reached a level at which the country’s vulnerability to economic or political shocks has widened and the risk of default has consequently increased,” Moody’s said.

While the risk of a default has increased, Moody’s cautions that a default is not necessarily imminent.

“At the Caa1 rating level, the historical record shows that the average, cumulative default rate over a one-year horizon is close to 10 percent and over a five-year horizon slightly under 40 percent,” Moody’s said.

 
A version of this article appeared in the print edition of The Daily Star on March 22, 2013, on page 5.
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