Fitch says there has been a slow but steady erosion of sovereign creditworthiness for several years. The agency says that it still regards exchange rate policy as a negative factor, despite the devaluation that has been effected since mid 2000. ‘Shortages of foreign exchange, the existence of a sophisticated parallel market and uncertainty about further policy changes preclude full realisation of the benefits that should have accrued from 20 per cent real effective depreciation,’ says James McCormack, senior director of sovereigns at Fitch.

The successive downgrades in Egypt’s ratings do not appear to have had a serious impact on trading in the $1,500 million in Eurobonds issued at the end of June 2001. The five-year paper is now trading at about 3.9 per cent above the issue price, giving it a yield to maturity of 6.297 per cent, compared with 7.625 per cent at issue. The 10-year paper is trading at about $98.1, giving it a yield of 8.995 per cent, compared with 8.75 per cent at issue.

The gloomy prognoses of the rating agencies also contrast with a more upbeat assessment in the most recent IMF Article IV consultation document, released by the government in mid August. The 22 July IMF statement refers to a ‘nascent economic recovery’, and notes the extent to which the flexibility of the exchange rate system has enhanced competitiveness.