S&P downgrades Egypt's credit rating
Standard and Poor's (S&P) announced on Friday (February 10th) it has downgraded Egypt's credit rating from B+ to B with a negative outlook.Standard and Poor's (S&P) announced on Friday (February 10th) it has downgraded Egypt's credit rating from B+ to B with a negative outlook.
S&P said in a press release published by Ecofin news agency that this was due to "a sharp decline of foreign exchange reserves" and "political uncertainties".
It stated that the foreign reserves have fallen to $16.1 billion (€12.2 billion) from $36 billion a year ago, as the Egyptian Central Bank sought to defend the pound while facing significant capital outflows and two digit annual inflation.
Norbert Gaillard, credit rating expert at the World Bank, told Les Echos newspaper about the consequences that a downgrade can have on the national financial system.
"The country's rating acts as a national benchmark. If it is lowered, all businesses, banks and especially local authorities' rates will be challenged," he stated.
Because banks will borrow at a higher cost on markets, they could make access to credit more difficult and raise interest rates, Mr Gaillard explained.
While the country's growth rate is now estimated at around one or two percent, compared with five to seven percent a few years before, the government hopes to receive financial help from the World Monetary Fund and other development banks.
Such assistance would ease the pressure not only on the budget but also on the balance of payments and would help restore investors' trust, said Moody's credit rating agency, which downgraded Egypt from B1 to B2 last December.