Egypt Bond Rating Cut as Violence Takes Further Toll on Economy
Egypt’s government bond rating was downgraded for a fourth time in a year, as 10 months of political unrest since the ouster of Hosni Mubarak threatened to bring the economy to a standstill.
Moody’s Investors Service cut Egypt’s rating one level to B2, five levels below investment grade, citing the government’s deteriorating finances and the “unsettled political situation.” The decision follows a week of rallies and clashes in Cairo in which 15 people have been killed and hundreds injured as soldiers and police tried to disperse demonstrations against the country’s military rulers. The unrest further threatens an economy suffering a 44 percent slump in foreign reserves and record borrowing costs.
Market sentiment toward Egypt “had already taken a turn for the worse over the last couple of months, particularly as reserves data started to show some worrying signs,” said Dina Ahmad, an emerging markets strategist at BNP Paribas SA in London. The downgrade “is likely to exacerbate that and could place further pressure on the government’s finances as they had already been facing sustained upward pressure on yields.”
Yields on Egypt’s dollar bonds maturing in 2020 were trading at a record high of 8.05 at 9.00 p.m. yesterday. The benchmark EGX 30 index fell 0.1 percent at the close in Cairo, and is down 48 percent this year.
The country’s foreign-exchange reserves fell by almost $4 billion over two months to $20.2 billion at the end of November. Egypt’s rating could be reduced further if they continue to decline at a similar pace, Moody’s said yesterday in a statement.
Protesters maintained their vigil in Cairo’s Tahrir Square for a sixth night, erecting tents and holding up pictures of those killed in the clashes. Mohamed Mostafa, a student, became the 15th person to die in the violence after sustaining a gunshot injury the previous day, Health Ministry official Hisham Sheeha said by phone in Cairo. Most of the deaths resulted from bullets and pellets, he said.
Thousands of Egyptian women joined protests on the streets of central Cairo on Dec. 20 following international condemnation of videos and photographs posted online and broadcast on private television stations showing troops stripping and beating a woman and dragging other demonstrators, hitting them with batons and stomping on them.
U.S. Secretary of State Hillary Clinton called Prime Minister Kamal el-Ganzouri to express concern about the beatings, State Department spokeswoman Victoria Nuland told reporters yesterday in Washington. She said Clinton was reacting to “horrible images” of violence against protesters.
Egypt’s Foreign Minister Mohamed Kamel Amr told reporters the government rejected “the interference from any country, either the U.S. or others, in our internal affairs,” when he was asked about Clinton’s criticism. The U.S. gives $1.3 billion to Egypt in annual military aid.
Egypt is in the middle of parliamentary elections in which the Muslim Brotherhood’s affiliate, the Freedom and Justice party, took an early lead, followed by the Nour party, a conservative religious grouping. Run-offs for the second round are being held today and tomorrow. A third and final round of voting begins in early January, while presidential elections are scheduled to be held by the end of June.
It is unclear what power an elected assembly may have. The ruling military council, which took power from Hosni Mubarak in February, says it won’t relinquish its authority until there is a new parliament, president and constitution.
The ruling generals “themselves risk future prosecution for complicity in serious crimes” unless they put an end to violence now and bring the perpetrators to justice, UN High Commissioner for Human Rights Navi Pillay said in a Dec. 19 statement, describing the crackdown as “vicious.”
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