“We also understand that $3.7 billion in prior support from the State of Qatar deposited with the Central Bank of Egypt has been converted into a medium-term obligation of the central government,” it added.
The S&P affirmed Egypt with CCC+/C rating with outlook stable, thanks to expected donor support.
“We view recent announcements of support–amounting to 4.4% of Egypt’s 2013 GDP–as evidence of bilateral donors’ willingness to provide ad hoc funding to avert an external financing crisis. This remains a key factor behind our stable outlook; the funding reduces balance-of-payments pressures and affords officials some time to address the political and economic challenges Egypt faces, and which we reflected in our downgrade of Egypt to ‘CCC+/C’ from ‘B-/B’ in May 2013. We are affirming our long- and short-term sovereign credit ratings on Egypt at ‘CCC+/C’ because default avoidance continues to depend on favorable political and economic developments. The stable outlook balances our view of Egypt’s changing political landscape and the significant pressures on foreign currency resources against its moderate external financing needs and our expectation those bilateral donors will provide funds in the short term,” S&P added.
On July 16, 2013, Standard & Poor’s Ratings Services affirmed its long- and short-term sovereign credit ratings on the Arab Republic of Egypt at ‘CCC+/C’. The outlook is stable.
“The ratings reflect our view of Egypt’s high political, external, fiscal, and other economic risks. These risks are partially mitigated by the country’s moderate foreign currency debt service obligations and our expectation that external financial support will be sufficient and timely enough to avoid default. We view Egypt as a geopolitically important country for regional stability and given its control of the Suez Canal,” S&P said.
“Our view of Egypt’s creditworthiness has not changed since the military removed President Mohammed Morsi from power on July 4, 2013. His removal came after millions of anti-Morsi protesters took to the streets on June 30. Interim president Adly Mansour issued a declaration on July 9 in which he presented an ambitious timetable to amend the 2012 constitution and hold parliamentary elections over the coming six months, followed by Presidential elections. The amended constitution will be voted on by referendum.
I”n our view, the Freedom and Justice Party (FJP), the Muslim Brotherhood’s political arm, continues to have considerable and well-organized political support in Egypt, but its involvement in the short-term political process appears uncertain. As a result, the legitimacy of the upcoming elections could be called into question by a significant proportion of the electorate. Recent events could radicalize elements of society and raise the prospect of escalating violence. We expect the high level of political tension in Egypt to persist and–at least in the short term–policymaking to remain insufficient to address Egypt’s weak external position and wide fiscal deficit, absent bilateral donor flows.
“We estimate Egypt’s net external liability position at a relatively modest 22% of GDP this year, with external debt service (including short-term debt roll-overs) at 11% of current account receipts. However, Egypt depends on imports for much of its oil and food, and recent shortages have fuelled the political turmoil. We believe that currency pressures could have a bigger impact on the economy than current data might suggest. We view Egypt’s ability to obtain the funds from abroad needed to meet its public- and private-sector obligations to nonresidents as vulnerable and dependent on favorable developments regarding donor support.
“We assess Egypt’s public finances as very weak, with the level of change in general government debt estimated to average 10% of GDP in 2013-2016. In our view, the subsidy system will remain a heavy expenditure item over the medium term. The government’s stock of debt is relatively high and expensive, with general government interest payments amounting to almost 30% of revenues. In our view, the government’s ability to raise revenues or cut spending is limited, particularly given Egypt’s shortfall in basic services. We estimate the government’s contingent liabilities as limited.
“We assess monetary policy flexibility as low, mainly reflecting our view of the CBE’s heavy management of the Egyptian pound. We expect the bank will continue to monetize much of the government’s local currency debt, notwithstanding the likely build-up in inflationary pressures, which we estimate will generate 10% average annual inflation during 2011-2015 (see ” ,” published May 20, 2013).
“We estimate GDP per capita at $3,200 in 2013, indicating a narrow potential tax and funding base for the government. Following several years of sustained strong growth, output is now expected to expand more slowly given ongoing political instability.
“The stable outlook balances our view of Egypt’s changing political landscape and the significant pressures on foreign currency resources against its moderate external financing needs and our expectation that bilateral donors will provide funds over the remainder of 2013. We could lower the ratings if we conclude that the Egyptian authorities are unable to prevent a further significant deterioration in external, fiscal, or monetary indicators. We could raise the ratings if Egypt’s political transition strengthens the social contract and a sustained increase in net international reserves provides evidence of external pressures easing.”