Moody’s downgrades Egypt sovereign rating

31 January 2011

Egypt downgraded to Ba2 on concern that finances will be hit by political unrest

Ratings agency Moody’s Investors Service has downgraded Egypt’s sovereign rating to Ba2 from Ba1 and changed the rating outlook to negative from stable as a result of the continuing anti-government protests.

The rating action is further evidence that the protests are hitting Egypt’s economy. The government has shut down the stock market and the banks for two days and delayed the sale of a local currency bond.

“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,” says Tristan Cooper, Moody’s sovereign rating analyst.

Moody’s said it would review the rating again if the political tension are overcome, and economic risks abated, and would downgrade further if tension escalates, or the economic situation worsens.

Another ratings agency, Fitch, has already put Egypt’s BB+ rating on review for downgrade.

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