The bells ring for Egypt
The economic problems of Egypt, which today will host the Cairo Peace Summit to resolve the Gaza crisis, are growing.
The US-based international credit rating agency S&P downgraded Egypt’s rating from B to B-. Thus, the North African country’s credit rating fell 6 notches below the investment grade level. The country’s credit outlook was considered “stable.”
Thus, Egypt’s credit rating, which was previously the same as Turkey’s, fell to the same level as that of countries such as Bolivia, Angola and Iraq.
THE REFORMS ARE DELAYED
The S&P statement indicates the continued postponement of the implementation of monetary and structural reforms as the reason for the decision to downgrade the rating.
The statement stated that these postponements led to an increase in imbalances in the foreign exchange market, a deterioration in the foreign asset position of banks and a delay in critical financing inflows, especially from the IMF.
Bloomberg mentioned that there is a shortage of foreign currency in the country of 110 million inhabitants.
THE GULF ALSO HAS CONDITIONS
S&P had lowered its credit rating outlook to negative in April, citing the risk that Egypt’s allies in the Gulf would delay or cancel the flow of financing.
In its statement yesterday, S&P emphasized that the Gulf countries have conditions to provide financing to Egypt and expect an economic return.
Moody’s, another US-based international credit rating agency, also downgraded Egypt’s credit rating this month from B3 to Caa1. This rating level, which indicates an increased risk of default, is 7 steps below the investment grade level. Türkiye’s credit rating is at level B3.
INFLATION BROKE A RECORD
One of the countries most affected by the Ukraine war, which began in 2022, was Egypt, and while the country’s foreign exchange reserves decreased rapidly, its currency also suffered sharp depreciations.
While official annual consumer inflation in Egypt broke a record of 38 percent in September, the central bank’s interest rate is at 19.75 percent.
Egypt’s net foreign exchange reserves amount to approximately $35 billion. Due to the currency crisis, the Cairo administration imposed restrictions on currency transactions.
SECOND COUNTRY WITH THE MOST DEBT WITH THE IMF
The International Monetary Fund (IMF) has only given a small portion of this money to Egypt, with which it signed a $3 billion loan agreement last year. Egypt demands both loan tranches and an increase of this amount to $5 billion. The IMF, on the other hand, wants a series of reforms, especially currency devaluation and liberalization.
Egypt had also begun a serious privatization process at the request of the IMF and the Gulf countries.
Bloomberg reported that investors are concerned that Egypt could default on its obligations by failing to pay its debts.
Egypt is the country that owes the most to the IMF after Argentina. Egypt has a debt of 22 billion dollars with the IMF.
The United States, which has the final say in IMF loans, makes its decisions taking into account its political relations with the country requesting the loan.
GAZA CONFLICT
Egypt and the United States have recently been at odds over the plan to deport civilians from Gaza to the Sinai Desert.
Israel and the United States want millions of people living in Gaza deported to Egypt’s Sinai Desert. Egypt does not accept this request.