Egypt’s bond rating cut

 

LONDON —Moody’s Investors
Service downgraded Egypt’s government bond ratings, citing the sharp increase
in political risk following several days of anti-government protests.

Moody’s
cut Egypt’s rating to Ba2 from Ba1 and changed the outlook to negative from
stable.

The
cost of insuring Egyptian government debt against default rose further
following the rating downgrade.

Spreads
on five-year credit default swaps widened to 450 basis points from 428 on
Friday, according to data provider Markit.

That
means it would cost $450,000 annually to insure $10 million of Egyptian debt
against default for five years.

The
spread widened by more than 110 basis points last week.

“The
rating action was prompted by the recent significant rise in political event
risk and concern that the policy response could undermine Egypt’s already weak
public finances,” Moody’s said in a statement.

Moody’s
said Egypt suffers from “deep-seated” political and socio-economic challenges,
including a chronic high rate of unemployment, elevated inflation and
widespread poverty.

“These,
together with a desire for political change, have fuelled popular frustrations,”
the agency said.

It’s
very likely that fiscal policy will be loosened as part of the government’s
efforts to contain discontent, according to Moody’s.

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