Moody’s credit ratings agency recently lowered its outlook for Egypt from “stable” to “negative,” and Fitch also warned of the impact of regional unrest on Egypt’s credit position.
What is the sovereign credit rating, and what does the repeated downgrading of Egypt’s credit rating by economic institutions mean? How does it affect the country’s ability to recover economically during the coming period?
Moody’s indicated in a statement, a few days ago, the growing risks represented by the continued “weakness of the country’s credit position amid the difficulty of rebalancing the macroeconomy and the exchange rate.”
The sovereign credit rating is an assessment conducted by international credit institutions of the creditworthiness of countries.
Sovereign credit ratings give investors a view of the level of risk associated with investing in a particular country’s debt, including any political risks. According to the Investopedia website.
There are credit grades followed by rating agencies, and for a country to have creditworthiness or what is called “investment grade,” for example, it must be “BBB” or higher for the Standard & Poor’s rating or “Baa” or higher for the Moody’s rating.
And Moody’s put Egypt’s credit rating is at “Caa1”, which means that “obligations are weak and subject to very high credit risks.”
Professor of Economics at the American University of Beirut, Jihad Hakim, told Al-Hurra website that Egypt’s new situation means increasing the cost of borrowing, because the risks are high.
He added: “This is a negative thing because the investor will demand a greater return on capital due to the cost of risk.”
He explains, “If we borrow from global financial markets, these institutions will demand a greater risk premium.”
Moody’s noted that even with the expected increase in IMF financing and the Egyptian government’s continued commitment to achieving primary surpluses, the negative outlook reflects “the risks of insufficient monetary policy measures and external support to prevent debt restructuring, given Egypt’s very weak debt indicators and its high exposure to debt.” and escalating foreign exchange and interest rate risks.
Egypt is already in discussions with the International Monetary Fund regarding a $3 billion loan program, and IMF officials recently visited the country for talks.
The agency indicated that regional unrest increases risks to the balance of payments, by affecting the main sectors generating foreign liquidity in the economy, such as tourism and Suez Canal revenues, and current transfers and financial transfers from abroad have declined.
Egyptian economic expert, Khaled Al-Shafii, explains in statements to Al-Hurra website that this classification means that the economy is “reeling due to the turmoil in the region.”
He stresses that some of these reports are “undoubtedly inseparable from the challenges facing the Middle East region.”
He points to the decline in revenues from the Suez Canal, one of the sources of foreign currencies in Egypt, the decline in tourism revenues, workers’ remittances abroad, and the existence of a black market for the dollar with a large difference from the official rate, which affects the foreign exchange market for Egypt, “which gave the impression to foreign institutions that Cairo is facing… Difficulty in paying its obligations.
Jan Friedrich, Managing Director and Head of Fitch Sovereign Ratings Agency in Europe, the Middle East and Africa, said at the “Credit Outlook” conference organized by the agency in Dubai, a few days ago, that the Houthi attacks have already affected the movement of ships in the Suez Canal, as it decreased by 70% in… 100 in the first weeks of 2024.
“If this continues, it will be a drain on a country that is already in a very difficult external situation,” he said, but added: “More broadly, I think the regional impact is still relatively manageable.”
The UNDP analysis warned that “human development could decline for at least two to three years in Egypt, Jordan and Lebanon.”
He pointed to refugee flows, high public debt, and declines in trade and tourism – a vital source of revenue, foreign currency and job opportunities in those three countries.
The ongoing war between Israel and Hamas in the Gaza Strip, and related violence in the Middle East, led to Egypt, Lebanon and Jordan, neighboring countries of both sides of the conflict, being exposed to “severe economic damage,” according to a report published by the American New York Times.
Troubled neighboring countries.. How were Egypt, Lebanon and Jordan affected economically by the Gaza war?
Violence in the Middle East has left Egypt, Lebanon, and Jordan exposed to “severe economic damage,” according to a report published by the American newspaper “The New York Times.”
Egypt, the most populous country in the Arab world, has not yet recovered from the high cost of basic imports such as wheat and fuel, falling tourism revenues, and declining foreign investment.
Government spending on mega projects and weapons led to a rise in Egypt’s debt. When central banks around the world raised interest rates to limit inflation, payments on those debts swelled, while prices inside Egypt continue to rise, eroding citizens’ purchasing power and companies’ expansion plans.
Al-Shafi’i believes that the Egyptian economy will be able to recover, through the measures to reduce spending and reduce debt announced by the government, but what is more important is the optimal exploitation of natural resources that have not been exploited, and the granting of privileged guarantees for their disclosure.
2024-01-29 03:52:15
#Egypts #credit #rating #decline #Free
