Moody's Investors Service downgraded on Wednesday Egypt's foreign and local currency government bond ratings by one notch to Ba3 from Ba2, citing continued political uncertainty. Moody's said the downgrade was prompted by "the prolonged political uncertainty in Egypt since our last rating action on 31 January, and our concerns about whether a transition to an effective and stable government will be achieved."
The agency previously cut Egypt's debt rating by one notch to Ba2. It said Wednesday's "decision to downgrade was also informed by the uncertain prospects for economic recovery, which in turn very much depend on the country's unpredictable politics." In noted the uprising in neighbouring Libya also had negative implications for Egypt's economy and security.
The ratings agency said it believes that Egypt's growth prospects, fiscal position and balance of payments have all deteriorated, while inflation remains high. The latest data from the central bank indicate that there has been a substantial fall in official foreign assets, likely related to capital outflows and the defence of the currency. Moody's said their are fears that reopening of the stock market, which has been closed since January 27, could lead to a renewed drain of capital. Egypt's rating remained on negative outlook, meaning it could be lowered further if there were a substantial fall in foreign exchange reserves, signs that the government were facing difficulty in funding its wide fiscal deficit.
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