S&P ‘slashes’ Egypt credit rating on political tensions

Society increasingly polarized by recent events

CAIRO, Dec 24 (RTRS): Standard & Poors’ cut Egypt’s long-term credit rating on Monday and said another cut was possible if deepening political turbulence undermines efforts to prop up the economy and public finances.

The downgrade reflects our opinion that political and social tensions in Egypt have escalated and are likely to remain at elevated levels over the medium term. In our view, the country’s institutions have been weakened by recent presidential decrees. Furthermore, the increased polarization between the Muslim Brotherhood’s Freedom and Justice Party (FJP) and sections of the population is likely to weaken the sovereign’s ability to deliver sustainable public finances, promote balanced growth, and respond to further economic or political shocks.

Events in Egypt continue to develop at a fast and unpredictable pace:

On Nov 20, the International Monetary Fund (IMF) announced that it had agreed with the government on the conditions relating to a loan to Egypt amounting to just less than 2% of GDP. However, the program still required approval by the IMF executive board.

On Nov 22, President Morsi increased his already substantial executive and legislative powers by removing the possibility of judicial oversight of his actions. His stated intention was to relinquish these new powers once a new constitution was in place. An immediate effect of the ruling was to prevent any judicial challenge to the constituent assembly drafting the new constitution and to back the near-