THE ECONOMY received several bangs on the head in the week of the presidential election run-offs. The Supreme Constitutional Court decision to dissolve the Egyptian parliament took investors and observers by surprise and was immediately negatively translated by international credit rating agencies. On Friday, Fitch IBCA decided to downgrade Egypt's sovereign credit rating deeper into junk status. The rating, cut by one notch to B-plus from BB-minus, has a negative outlook, meaning there is a greater than 50 per cent chance of more downgrades in the next 12 to 18 months. According to a Fitch Ratings press release, the downgrade and negative outlook reflect increased uncertainties surrounding Egypt's political transition following the ruling by the Supreme Constitutional Court to annul parliamentary elections and dissolve parliament. "The political and policymaking process has been complicated, delaying the likely implementation of the comprehensive macroeconomic and structural reforms needed to kick-start recovery and ease financing strains," says Richard Fox, head of Middle East and Africa Sovereigns at Fitch. Fitch added: "The need to re-run parliamentary elections will, at the very least, delay the emergence of a workable and inclusive governance structure." Moody's Investors Service was quoted by Bloomberg news agency Monday as saying that heightened political uncertainty would likely prove a setback to the economy, which was just beginning to regain some domestic and foreign creditor confidence. Since the uprising late in January 2011, Egypt has been witnessing continuous downgrading by international investment houses, reflecting the negative effect of instability on the country's economy, foreign reserves, and public finances. In addition to tension preceding the announcement of the result of the presidential election, the Fitch move stripped the market of 8 per cent in Monday , Tuesday and Wednesday trading, the first sessions of the week following the investment house downgrade decision. On Monday, the EGX30 fell to a near five-month low amid heavy selling from foreign investors. The downward trend continued on both Tuesday and Wednesday pushing the measure's overall decline to 8 per cent. This narrowed market gains since the beginning of the year to 12 per cent compared to 40 per cent in early April when the political scene was less murky. Adding to the injury, Central Bank of Egypt Governor Farouk El-Okda said this week that Egypt's economic growth would slow to below two per cent this year from 2.5 per cent last year as a result of political turmoil.
