Published: January 31, 2011
Sovereign rating drops to Ba2 on negative outlook.
As social unrest continues in Egypt, ratings agency Moody's has downgraded its government bond ratings to Ba2 from Ba1 and changed the outlook to negative from stable.
In a statement, the firm said the action was prompted by the “significant rise in political event risk and concern that the policy response could undermine Egypt's already weak public finances”.
Moody’s has also downgraded the country ceiling for foreign currency bonds to Baa3 from Baa2 and the country ceiling for foreign currency bank deposits to Ba3 from Ba2. The outlook on these ratings was also changed to negative from stable.
The statement continued: “In Moody's opinion, there is a strong possibility that fiscal policy will be loosened as part of the government's efforts to contain discontent. A background of rising inflationary pressures further complicates fiscal policy by threatening to increase the high level of budgetary expenditure on wages and subsidies.”
However, the firm added that Egypt’s ratings continue to be supported by factors including a well-diversified economy and a favourable public debt structure with limited refinancing risk. “The government has shown a high degree of willingness to repay and has never defaulted on its bonds,” its analysts noted.