The agency lowered Egypt from B-plus one notch further into junk status. It now sits five steps below "investment grade" on a negative outlook.

 

It is the third time S&P's has downgraded Egypt's long-term rating since late January 2011. The most recent instance was at the end of November.

 

Egypt's foreign currency reserves fell a monthly $1.77 billion to reach $16.35 billion at the end of January, the central bank announced on Tuesday.

 

A statement from S&P's on Friday said a further downgrade was possible if Egypt's new government fail to stem the decline in reserves or an uncertain policy environment and weak institutions emerge from the country's ongoing political transition.

 

"The downgrade reflects our opinion that Egypt's external position has deteriorated and is likely to weaken further, absent stabilisation in the domestic political situation alongside external financial support," said S&P's.

 

Its statement appeared to back the controversial measure of IMF borrowing for Egypt, saying the imminent, and controversial, $3.2 billion loan from the global body, as well as "potential funding from other multi- and bi-lateral lenders, could provide important near-term external financing."