Egypt’s dollar-denominated bonds have experienced a significant decline in value following a downgrade of the country’s credit rating by Moody’s. This downgrade has pushed Egypt further into the category of low-quality or “junk” bonds, adding to the financial challenges faced by the country as it approaches its December elections.
Moody’s is a global integrated risk assessment firm that provides organizations with the tools and information needed to enhance their decision-making capabilities.
Specifically, Moody’s lowered Egypt’s credit rating by one level, from “B3” to “Caa1,” now placing it seven levels deep into junk status due to concerns about the country’s deteriorating ability to manage its debt. Egypt’s government bonds recovered from a steep drop on Friday after Moody’s lowered the country’s credit rating to a new low and the IMF’s chief urged Cairo against postponing another currency depreciation.
Moody’s, which had been considering a downgrade for months, completed the process late on Thursday by lowering it one notch into the substantial risk’ Caa1 bracket, which is seven rungs into the ‘junk’ category.
In response to Moody’s credit rating downgrade, Egyptian Finance Minister Mohamed Maait stated that the government is actively implementing structural reforms to tackle its economic difficulties and is also adopting measures to encourage investment. He further noted that despite external factors such as the Ukraine conflict, which led to increased prices of essential imports like fuel and certain food items, Egypt managed to control its spending during the fiscal year that concluded in June.
In addition, debit card restrictions have been implemented. About two Egyptian banks this week suspended the usage of Egyptian pound debit cards outside the country to stop a drain on foreign currency. Monica Malik, chief economist at Abu Dhabi Commercial Bank, expressed her concerns to Reuters, stating that the delays in the IMF reviews and the rating downgrade have raised additional worries regarding Egypt’s significant external financing gap.
Overall, these events, including the IMF’s concerns and the rating downgrade, have raised concerns about Egypt’s significant external financing gap and its economic stability as it approaches elections in December.