Egypt had its government bonds ratings cut by Moody’s Investors Service, the first such action since protests began demanding the ouster of President Hosni Mubarak.
Moody’s cut the bonds to Ba2, two levels below investment grade, from Ba1, and changed the outlook to negative from stable. It also downgraded the country’s ceiling for foreign currency bonds to Baa3 from Baa2, and the ceiling for foreign currency bank deposits to Ba3 from Ba2.
“This has resulted from escalating political tensions in the country,” the agency said in a statement.
Increased borrowings costs will make it harder for Egypt to meet its target of lowering the budget deficit to around 3 percent of gross domestic product by 2015. The global financial crisis had caused the budget shortfall to widen to 8.1 percent of GDP in the fiscal year that ended in June from 6.9 percent in the previous 12 months. Fitch Ratings has changed its outlook on Egypt from stable to negative.
“There is a strong possibility that fiscal policy will be loosened as part of the government’s efforts to contain discontent,” Moody’s said in the statement. “The public finances of Egypt are already stretched.”
Egypt’s credit default swaps rose 3.5 basis points to 432.5 according to CMA prices. Egypt’s debt is riskier than that of Iraq, a country still recovering from the U.S.-led invasion, whose contracts trade at 336.
The yield on the government’s $1 billion of bonds due in April 2020 rose 38 basis points to a record 6.97 percent today, according to data compiled by Bloomberg.
The protests in Egypt, which erupted on Jan. 25, were inspired by a revolt in Tunisia that forced President Zine El Abidine Ben Ali into exile on Jan. 14. Mubarak, 82, has been in office since 1981 and hasn’t said whether he will seek re- election when his term expires this year.
Mubarak’s response to the protests -- appointing intelligence chief Omar Suleiman as vice president and former air force commander Ahmed Shafik as prime minister -- has failed to stop the rallies calling for his ouster.
Egypt’s stock market remained closed today after the benchmark EGX30 index plunged 16 percent last week. Orascom Construction Industries, Egypt’s biggest publicly traded builder, had its London-listed Global Depository Receipts slump as much as 10 percent before trimming losses to trade 2.7 percent down at $33.86 at 9:50 a.m.
Dubai’s DFM General Index fell 0.6 percent today, extending yesterday’s 4.3 percent loss. Emaar Properties PJSC, which says it’s the biggest foreign investor in Egypt’s real-estate industries, fell 1.9 percent to 3.05 dirhams after plunging 8.3 percent yesterday.
“We expect other agencies may also downgrade Egypt but to varying degrees,” said Omar Abdallah, director at A/T Capital Management in Dubai. “These downgrades may be short-term in nature and if the political situation stabilizes, some may be reversed.
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