By Nasser Youssef
Economic watchdogs have expressed anxiety as to the possibility of further downgrading to Egypt’s credit rating and the devaluation of the Egyptian pound.
President of the Middle East Rating and Investors Services (MERIS), Amr Hassanin, stated that Egypt’s decision to postpone acceptance of the IMF loan could lead to yet another downgrading in the country’s credit rating.
However, he added. “I don’t think any change in Egypt’s credit rating will take place until after the referendum on the constitution is held and its results have been made clear.” The country’s current economic situation is terrible and it has become very difficult for Egypt to attract investors. The country, he said, is in a state of “open-heart surgery.”
The government’s recent decision to raise taxes was done in an attempt to strengthen its position before its meeting with the IMF scheduled for this month. However the subsequent freezing of tax hikes has left the government in a weak bargaining position, leading it postpone acceptance of the loan.
“Postponing acceptance of the loan would have a large effect on the country’s economy and finances. Any potential downgrade in Egypt’s credit rating would also serve as a broader reflection the country’s status quo,” said the Head of Research and Chief Economist of Pharos Holding for Financial Investments, Hany Genena.
He stated that postponing the acceptance of the loan could potentially lead to the collapse of the Egyptian pound, something which could lead to a 20 per cent decrease in the number of imports entering the country. Ganena also added that the rate of defaulting amongst Egyptian producers would increase since the majority of debts and cost structure are in US dollars, while revenues are in pounds.
“The decision to postpone talks regarding acceptance of the IMF loan represented a desire on part of the fund and its donor countries to reach a deal with the Egyptian government,” said Cairo University’s economics professor and previous advisor to the IMF, Fakhry El-Fiqi.
He added that postponement of the talks was necessary in order to grant the Egyptian government ample time to stabilise the country’s political and economic environment.