Egypt’s credit rating has been downgraded by rating agency Moody’s Investors Services, as a result of the country’s continued political instability.

Moody’s lowered the country’s government bond rating by one notch from B3 to Caa1, with a negative outlook.

The ratings agency stated that the “deep polarisation of the country’s democratically elected government and those in opposition”, was the reason behind the downgrade.  It cites the decision to postpone parliamentary elections until June as evidence of Egypt’s continued political stalemate.

The political unrest has resulted in continued civil unrest and undermined the Egyptian government’s ability to manage its finances and external balance of payments, which Moody’s sees as increasing the country’s risk of default.

Violent clashes between protesters and the ruling Muslim Brotherhood broke out again towards the end of March, with Brotherhood offices attacked in Cairo and Alexandria.

Moody’s also highlights the uncertainty surrounding the Egyptian government’s ability to secure a potential loan from the Washington-headquartered IMF as a reason for the downgrade.

The downgrade will make it more expensive for the government to raise debt and equity, including Islamic financing.

“It also poses further pressure on the cash conversion cycle of manufacturing firms that import raw material, given that suppliers will likely request cash payments to secure against delinquencies,” says Hany Genena, analyst at Egypt-headquartered Pharos Research.