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Standard and Poor's reduces Egypt's sovereign credit rating

Ahram Online , Monday 16 Nov 2015
Standard and Poor
Standard and Poor's (Reuters)
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Egypt’s ratings for short-term and long-term local and foreign currency sovereign credit was reduced from positive to stable by Standard and Poor's ratings agency.

The international credit ratings agency attributed its decision to the persisting external financing needs for Egypt, which has depended for the past few years on the now fading support from the Gulf.

Fiscal pressures faced by Gulf countries indicate that they are unlikely to support Egypt financially, according to S&P’s statement released on Friday.

"The stable outlook reflects our expectation that Egypt will largely remain politically stable."

In their stable rating, S&P expects Egypt to continue with the fiscal reform programme by introducing the value-added tax, reforming wages, and further cutting fuel subsidies.

Since Abdel-Fattah El-Sisi took office in June 2014, his government has cut fuel subsidies, raising prices at the pump by up to 78 percent, reduced electricity subsidies and introduced a property tax in an effort to clench on a ballooning deficit which hit 11.5 percent in that year, down from 12.2 percent the previous year.

The government has also introduced a new civil services law, which aims to lessen the wage burden, currently contributing to quarter the state budget, through restructuring the administrative apparatus.

"We understand that the government's external financing plan for this fiscal year (July 2015-June 2016) is to issue another Eurobond and sukuk (Islamic bonds) in order to diversify its funding sources," the S&P statement added.

In June, Egypt issued Eurobonds at a value of $1.5 billion with 10-year maturity for 6 percent yield. Finance Minister Hany Qadry announced in April that Egypt would issue sukuk in the fiscal year 2015/16 to fund its deficit.

"We also consider that Egypt will very likely receive further concessional loans from international official institutions during this fiscal year."

Egypt is negotiating a $3 billion loan from the World Bank, in addition to $1.5 billion from the African Fund to support development programmes in the state budget, according to minister of international cooperation Sahar Nasr.

Additionally, the government seeks to negotiate another $2 billion loan from the World Bank and $1.5 billion from the African Fund to finance national projects, according to the minister.

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