Fitch Ratings, the global rating agency, downgraded Egypt’s issuer default ratings and country ceiling from ‘B’ to ‘B-’, following the unrest that took place after the military deposed President Mohamed Morsi amid mass demonstrations.
The global firm cited “heightened uncertainty” and “inflamed political tensions” as reasons behind the economic turbulence in the country, both likely to jeopardise its economy and creditworthiness.
“There is a risk of a material deterioration from domestic political stability, with downside risks for economic outcomes and creditworthiness. There is high uncertainty over how the risks resulting from the military coup evolve over the short term and the eventual pathway to a peaceful political transition,” the firm said in a press release.
“The fact that Fitch’s rating of the country is negative means that the firm’s rating could be cut down even further than this,” said former president of the American Chamber of Commerce in Cairo, Gamal Moharram.
Both ratings are non-investment grade or “junk” ratings, six notches below investment grade.
“Whether we can look at this and say it’s alarming or not, Egypt has been in a junk status for a while now, and it should have alarmed us long ago, not now,” said Moharram in reference to ratings cuts earlier this year.
In March, Moody’s cut Egypt’s credit rating by one notch from B3 to Caa1, which it said meant it now sees nearly a 10% chance of Egypt defaulting on its debt over the next year, and slightly less than a 40% chance of a default within five years.
It was Moody’s sixth downgrade of the country since January 2011, at the height of the uprising that toppled Mubarak.
Moharram stated that despite the negative economic consequences that come with these ratings, the challenge now lies in the hands of interim President Adly Mansour and the future government, and what they’re likely to offer to address and salvage the economic crisis.
“Egypt’s fiscal position is worrying, and the deficit is widening as we speak with no one attempting to find solutions for it, so it is really about what is to be done now,” he added.
Fitch’s release also stated that the current political scene may impede Egypt from implementing its fiscal and structural reforms, necessary to secure the proposed $4.8bn International Monetary Fund loan package.
Egypt’s economy plunged into a deep crisis following the January 25th Revolution, as the cash-strapped government continues to grapple to this day with dwindling tourism, sliding foreign currency reserves and a soaring budget deficit amid continued protests.