Egypt Opposition Vows to Overturn Islamist Constitution

Egypt’s deepening political crisis led to another cut in the country’s credit ratings today as opposition groups vowed to renew their challenge to an Islamist-backed constitution.

The National Salvation Front, an umbrella group for the opposition alleged foul play and vowed to revoke the charter which unofficial results showed was passed in a vote that ended on Dec. 22. Meanwhile, Standard & Poor’s Ratings Services lowered its long-term sovereign ratings on the Arab world’s most populous country to B- from B, on a par with Greece and Pakistan, and warned a further downgrade is possible.

Supporters of President Mohamed Mursi, who pushed the charter to a vote ignoring opposition calls to delay the referendum, say the process is key to restoring order as the country struggles with a faltering economy, high unemployment and a flight of foreign capital. Mursi’s opponents, a mix of Christians, youth activists and secular groups, say the bill bolsters the influence of Islam in state affairs and fails to protect freedoms.

“The downgrade reflects our opinion that political and social tensions in Egypt have escalated and are likely to remain at elevated levels over the medium term,” S&P said. “The country’s institutions have been weakened by recent presidential decrees. Furthermore, the increased polarization between the Muslim Brotherhood’s Freedom and Justice Party and sections of the population is likely to weaken the sovereign’s ability to deliver sustainable public finances, promote balanced growth, and respond to further economic or political shocks.”

Unofficial Results

Unofficial results posted by the Muslim Brotherhood show the charter passed with almost 64 percent in favor, with about 33 percent of eligible voters casting ballots. The elections committee is yet to say when it will announce the result.

S&P said another downgrade was possible if there’s a “sharp deterioration” of indicators such as foreign reserves, which are already nearly 60 percent below pre-revolt levels.

Weeks of rival protests and heightened tensions since Mursi last month issued a decree boosting his powers and referred the charter to a vote have undercut hopes for an economic recovery. The country asked the International Monetary Fund to delay a decision on its request for a $4.8 billion loan that officials have said was necessary to boost investors’ confidence and unlock further funds.

Opposition groups “are committed to continuing our collective, peaceful struggle to bring down this constitution as soon as possible through legitimate means,” former presidential candidate Hamdeen Sabahi told reporters in Cairo yesterday. “We trust that the door of peaceful protests and peaceful civic resistance is open to Egyptians to topple this constitution.”

National Dialogue

Essam el-Erian, vice chairman of the Muslim Brotherhood’s Freedom and Justice Party, said claims of voting rigging were untrue and called for national dialogue, the state-run Middle East News Agency reported.

Farah el-Naggar, a 37-year-old maid and mother of three, didn’t vote even though she backed Mursi in the June presidential election.

“I live day by day, and each day, life gets harder,” el-Naggar said in an interview. “People like me don’t have time to think about constitutions any more. We need to feed our families. We need stability in this country, and all we’ve gotten are broken promises.”

The country’s budget deficit increased 38 percent to 80.7 billion pounds ($13.1 billion) in the period between July and November 2012, compared with a year earlier, Finance Ministry figures show.

IMF Requirements

If political polarization persists, “the ‘broad-based domestic and international support,’ which the IMF views as ‘crucial for the successful implementation of the planned policies’ under the program, could remain out of reach,” S&P said. “This would further strain Egypt’s already weak public finances, economic growth prospects, and external indicators.”

The premium investors demand to hold Egyptian debt over similar-maturity U.S. securities has climbed 44 basis points, or 0.44 of a percentage point, to 452 since Mursi sparked the constitutional dispute Nov. 22 by granting himself extra powers.

Mursi will temporarily transfer his legislative powers to the so-far powerless upper house of parliament after the result of the vote is released, the state-run Al-Ahram reported, citing unidentified officials in the presidency. The move would mean the president, who assumed the powers because the lower house had been disbanded earlier in the year by court order, may be able to deflect some of the criticism he faced. He called on the upper chamber to meet Dec. 26.

Parliamentary Elections

After the adoption of the charter, he is also expected to call for parliamentary elections that could offer Islamists a chance to recapture the majority they held in the dissolved legislature.

“With the presidency, parliamentary and upper house majority and the army now onside, the fractured opposition will be unable to block any motions or major moves, with amendments to the constitution requiring a majority vote in parliament,” Emad Mostaque, a London-based investment strategist at Noah Capital Markets, said in an e-mailed note today.

Before the vote on the charter, and amid clashes between Islamists and the opposition, Mursi’s government earlier this month suspended a decision on tax hikes after the move sparked broad outrage among the impoverished.

“We anticipate one of the first moves that will be made will be to pass the currently suspended taxation increases and subsidy cuts allowing the IMF and EU aid of over $10 billion to come through, stabilizing the economy,” Mostaque said.

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