World Economy

Egypt Credit Outlook Lowered by S&P

Egypt Credit Outlook Lowered by S&PEgypt Credit Outlook Lowered by S&P

Egypt’s credit outlook was cut to negative from stable at S&P Global Ratings, which expected continued foreign exchange shortages as aid from Persian Gulf Arab allies deteriorate because of the slump in their oil-related revenue.

The most populous Arab country’s B- rating was maintained by S&P, putting it on par with Argentina, Greece and Pakistan. That’s five levels lower than before Arab Spring protests ended President Hosni Mubarak’s three decades in power in 2011, Bloomberg reported.

“Egypt’s external and fiscal vulnerabilities might increase further over the next 12 months,” S&P said in a statement. “This could dampen the country’s economic recovery and exacerbate sociopolitical challenges.”

Egypt has seen its economy suffer amid a more than 40% slump in tourist arrivals since the bombing of a Russian airliner over Sinai in October, while non-oil business activity has contracted for the past seven months amid the shortage of dollars. The government is in talks to receive a pledged $2 billion deposit from the United Arab Emirates to support its foreign reserves, which cover the equivalent of 3.6 months of imports.

S&P said it may lower the rating if foreign exchange reserves decrease more quickly than currently expected, or if current account financing, including from (P)GCC countries, become less forthcoming. “Deteriorating domestic fiscal funding options, increased political risk, or a weaker institutional environment could also lead us to lower the ratings.”

  Second Rank

Egypt has replaced South Africa as the second largest economy in Africa, the International Monetary Fund said in a report about the World Economic Outlook.

The IMF said that South Africa is now the third-largest economy on the African continent after Nigeria and Egypt.

According to the statement, Egypt surpassed South Africa due to the depreciation of rand, the local currency of South Africa.

The gross domestic product of Egypt has increased by 7.5% during the period from 2012 to 2015, the statement said.

Nigerian GDP in US dollar terms surpassed its South African equivalent in 2011. By the end of 2015, Nigeria’s GDP was measured at $490 billion compared to South Africa’s estimate of $313 billion.

Egypt’s nominal US dollar GDP, however, expanded by an average of 7.5% during 2012-15 period. The Egyptian pound’s depreciation during 2012-15 period was at a notably slower pace compared to that of the rand.

Since early in 2011, the Central Bank of Egypt has tightly managed the pound, resulting in a milder depreciation compared to the free-floating South African currency. This contributed to Egyptian GDP eclipsing its South African counterpart during 2015.