On Friday, Standard & Poor’s issued a report announcing that it downgraded its outlook on Egypt’s sovereign debt from stable to negative. This reflects a possibility of also downgrading Egypt’s credit rating later, down from the current B, which indicates Egypt’s ability to meet its financial obligations.
The American credit rating agency attributed its negative view to the risks that the Egyptian economy may be exposed to in the future in light of the Egyptian authorities’ insufficient economic or monetary measures. It is expected, however, that the country would complete access to loans already agreed upon, including loans from other countries and multilateral organizations. The Egyptian government’s reforms, announced last year, may lead to a steady flow of foreign currency. Still, it said only if they are fully implemented, adding that delays in structural reforms and alterations linked to the exchange rate put pressure on the Egyptian pound, increasing the risk of a sharp depreciation.
According to Bloomberg, the International Monetary Fund is waiting for Egypt to implement more wide-ranging economic reforms before conducting the first review of a $3 billion bailout program. A delegation from the IMF was supposed to visit the country last March to conduct the review, but that has yet to happen. Although the Central Bank of Egypt promised last October to allow supply and demand to determine the exchange rate for the local currency, the rate has remained virtually unchanged for more than a month, at about $ 0.032. The Egyptian government had also promised to sell significant state-owned assets over the next four years but has yet to make any effective sales since signing the agreement with the IMF.
Reuters has quoted the Director of the Middle East and Central Asia Department at the IMF, Jihad Azour, as saying, “We are in regular dialogue with the authorities to prepare for the first review, and when we and the authorities are ready for that, we will announce the date.” Last week, the Managing Director of the IMF, Kristalina Georgieva, said that the financing program agreed upon by the significant financial agency with Egypt is based on three main determinants, which are the liberalization of the local currency exchange rate, allowing the private sector to lead the economy, and monitoring spending on long-term mega projects.