S&P downgrades Egypt credit rating on 'elevated' tensions

Rating agency Standard and Poor's on Monday downgraded Egypt's long-term credit rating because of "elevated" tensions over its political crisis, and warned it could be lowered further. The country's long-term rating was lowered to 'B-' from 'B' because the turmoil has "weakened Egypt's institutional framework, and the increasingly polarised political discourse could diminish the effectiveness of policy-making," the agency said. "A further downgrade is possible if a significant worsening of the domestic political situation results in a sharp deterioration of economic indicators such as foreign exchange reserves or the government's deficit," it said. Egypt's economy, once a vibrant opportunity for investors, was brought low by the early 2011 revolution that ousted Hosni Mubarak, ruler for the previous three decades. The uncertainty has not improved under President Mohamed Morsi, who came to power in June on the back of support for his Muslim Brotherhood and other Islamists. Agreement on a $4.8 billion loan from the International Monetary Fund was put on hold this month because of the political impasse Morsi has found himself in amid fierce opposition protests. The IMF money is needed to prevent a collapse of Egypt's currency. The country's central bank foreign reserves have more than halved since Mubarak's overthrow to less than $15 billion. "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," Standard and Poor's said. The political polarisation will likely weaken international consensus on extending credit to Egypt, it said. "We expect political tensions to remain elevated, with no clear indication that rival factions will be brought to a point at which they can contribute to addressing Egypt's economic, fiscal, and external challenges," the agency said. The agency's short-term rating for Egypt was maintained at 'B' but with a negative outlook.