S&P gives Egypt rating a reprieve but cuts Libya
Standard & Poor's took a step back from a potential downgrade of Egypt's BB long-term foreign currency credit rating on Thursday, citing improved prospects for political transition.
March 11, 2011 / 11:43 IST
Standard & Poor's took a step back from a potential downgrade of Egypt's BB long-term foreign currency credit rating on Thursday, citing improved prospects for political transition.
The fighting in Libya between the government of Muammar Gaddafi and rebel forces, however, prompted S&P to slash the OPEC producing nation's credit rating by four notches to BB, junk status, from BBB-plus.The firm removed Libya from review for a possible downgrade but also suspended its ratings because of international sanctions and the lack of timely and reliable information.Political turmoil in the Middle East and North Africa has already seen the leadership of Egypt and Tunisia removed because of popular uprisings.Protests are ongoing across the energy-rich region, which could potentially short-circuit a budding global economic recovery through supply disruptions or higher costs.S&P removed Egypt from its CreditWatch with negative implications, which serves as a warning for potentially imminent rating actions.While the current Egyptian rating was affirmed, S&P maintained a negative outlook, leaving Egypt vulnerable to a possible downgrade this year or next, S&P said in a statement."The affirmation of Egypt's ratings reflects our view that the immediate risks to the government's credit standing have receded," S&P said.S&P said "if the political transition falters or if concessional external financing does not materialize to finance fiscal deficits -- which we forecast to be in the range of 9% to 11% of GDP for the next few years -- then we could lower Egypt's ratings later this year or in 2012."Egypt is rated similarly by Moody's Investors Service at Ba2 and BB by Fitch Ratings.The political future of Egypt remains in question after a popular uprising drove long-time President Hosni Mubarak from power.Presidential and parliamentary elections, due later this year, are being watched closely for signs of how democratic the country's political life will be after more than three decades of state oppression that created a toothless opposition and stifled political activity, political analysts say."The ratings could stabilize at current levels, in our view, if Egypt's political transition strengthens the social contract and if government debt dynamics remain within our forecast of net general government debt reaching a plateau of 62% of GDP," S&P sovereign credit analyst Mike Noone said.Earlier on Thursday, Egyptian Finance Minister Samir Radwan said the economy may grow as slowly as 3% when the fiscal year ends in June if domestic production does not get back on track.The government was expecting growth of 6% before Mubarak's government was toppled last month.Even as the protests have turned from a boil to a simmer, Egypt's main stock exchange remains shuttered. The Cairo exchange, the region's oldest and most liquid, has been closed since January 27. There is no word from the government on when it will reopen, though it has promised investors 48 hours advanced notice.Libyan tanks fired on rebel positions in the oil port of Ras Lanuf and warplanes hit another oil hub further east on Thursday as Gaddafi's forces launched counter-attacks deeper into the insurgent heartland.S&P said that while the Libyan central government has neither commercial debt nor sovereign guarantees on debt of public enterprises or other entities, its sources of funding will remain limited.Because of the sanctions, which have frozen assets of the Gaddafi regime abroad, the government also cannot borrow internationally and the undeveloped local financial markets give it little chance to raise capital domestically.The oil rich eastern portion of the Arab North African nation is largely held by the rebel forces, complicating the export of oil and the receipt of funds into government coffers. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
