Egypt, Elsewedy review progress on Ain Sokhna phosphate complex    US employment cost index 3.6% up in year to June 2025    Egypt welcomes Canada, Malta's decision to recognise Palestinian state    Pakistan says successfully concluded 'landmark trade deal' with US    Sterling set for sharpest monthly drop since 2022    Egypt, Brazil sign deal to boost pharmaceutical cooperation    Modon Holding posts AED 2.1bn net profit in H1 2025    Egypt's Electricity Ministry says new power cable for Giza area operational    Egypt's Al-Sisi, Italian defence minister discuss Gaza, security cooperation    Egypt's FM discusses Gaza, Nile dam with US senators    Aid airdrops intensify as famine deepens in Gaza amid mounting international criticism    Egypt exports first high-tech potato seeds to Uzbekistan after opening market    Health minister showcases AI's impact on healthcare at Huawei Cloud Summit    On anti-trafficking day, Egypt's PM calls fight a 'moral and humanitarian duty'    Egypt strengthens healthcare partnerships to enhance maternity, multiple sclerosis, and stroke care    Egypt keeps Gaza aid flowing, total tops 533,000 tons: minister    Indian Embassy to launch cultural festival in Assiut, film fest in Cairo    Egyptian aid convoy heads toward Gaza as humanitarian crisis deepens    Culture minister launches national plan to revive film industry, modernise cinematic assets    I won't trade my identity to please market: Douzi    Sisi sends letter to Nigerian president affirming strategic ties    Two militants killed in foiled plot to revive 'Hasm' operations: Interior ministry    Egypt, Somalia discuss closer environmental cooperation    Egypt's EHA, Huawei discuss enhanced digital health    Foreign, housing ministers discuss Egypt's role in African development push    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Sisi launches new support initiative for families of war, terrorism victims    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Egypt's Irrigation Minister urges scientific cooperation to tackle water scarcity    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



Market's main remedy is political stability, experts say
Published in Daily News Egypt on 12 - 05 - 2011

CAIRO: With Egypt's credit ratings recently downgraded by top agencies like Moody's and Fitch, experts warned of further negative economic effects if the country's political situation does not stabilize.
On January 31, just six days after the start of Egypt's uprising, Moody's Investor Services downgraded Egypt by one notch taking it down from BA1 to BA2, changing the economic outlook to negative from stable.
Days later, on February 2, Moody's downgraded five Egyptian banks, including Ahly Bank, Commercial International Bank and Bank of Alexandria.
Amr Hassanein, chairman of Middle East Rating and Investors Service, said at Egypt's Credit and Risk Association (ECRA) forum Tuesday that these banks were downgraded as a result of the country's reduction.
“Countries face risk of downgrades when there is political instability that could lead to a general repudiation of debt, when the strength and liability of their legal system becomes weak, or when there is a possibility of war,” he added.
On March 16, however, the entire country's outlook was downgraded for a second time to BA3, putting it in the questionable outlook category, along with countries like Georgia, Bangladesh and the Philippines.
For Egypt, these downgrades mean an increase in the cost of borrowing for local companies, and an increase in the costs of transporting import and exports for example.
“The primary driver for these downgrades is the continued volatility in the country's domestic politics,” said Hassanein.
He added that the country's government debt, which is 73 percent of GDP, exceeds the BA median of 45 percent of GDP.
The government deficit is also likely to approach 10 percent this year, government bond ratings, institutional strength, and government financial strength have all been bumped down to low from moderate.
According to Richard Fox, senior director and head of Middle East and Africa Sovereigns for Fitch Ratings, the government debt of Egypt is the highest in the region.
There has been significantly high debt; the country's more vulnerable to inflation, yet over the past years there has been an increase in GDP, he pointed out.
According to Kapil Chadda, regional head of financial institutions for HSBC, who was also present at the forum, Egypt, unlike natural resource-rich countries is not able to spend its way out of the problem, therefore, political reforms are at the “heart of the solution.”
Despite the recent political turmoil, however, Chadda assures that HSBC “is not deterred by the risks that face Egypt.”
Before the revolution, and despite the global economic crisis, Egypt managed to maintain its external robust market and the GDP grew to be 5.5 percent.
Now, however, experts say that in order to revive the economy, local and foreign investments will have to be encouraged and investors who shied away from the economy before should feel more comfortable to jump in.
However, if changes are not taken seriously and the government does not make the proper amendments, the economy and its credibility will remain weary.
“When the revolution started, its demands were clear [in] calling for transparency and an end to corruption and investors' reactions to this were extremely positive, proactive, and encouraging,” said Karim Helal, chairman of CI Capital Investment Banking. “Local and foreign investments were multiplying.”
In the midst of the political instability that the country continues to face, with an interim government, uncertain political fate ahead, and recent interfaith tensions, the situation will not improve unless these issues are tackled and concrete policies are put in place.
“Without the presence of security and stability in the Egyptian street, I personally don't feel safe and neither do the citizens, so we can't expect more investments in these kind of circumstances,” Helal said. “Secondly, there is an absence of a government, which is what makes local and foreign investments turn away now.”
Helal also emphasized that there is a thin line between fighting financial corruption and targeting all successful businessmen who contributed to the Egyptian economy.
“If we lose all our trust in the nation, this will also have a negative impact,” he said. “I see a lot of people saying they love Egypt, if we love Egypt we need to start working work to bring back productivity in order to lift the country up from the downgrades.”
But, getting back to business is not the only concern here. John Sullivan, executive director at the Center for International Private Enterprises, said that democratic governance is the missing link to the country's economic success.
In the previous way of doing business, “there was a high-entry level for investors, credit approval was only for big companies, and business was done in close ties,” he said. “Before the revolution, the question was not ‘if' this leadership would change, it was ‘when' the leadership would change, it was just a matter of time.”
Simply continuing down the same road as before is not the answer, but creating a system where people can participate and contribute readily to change in social, political, and economical policies is what will revive Egypt's market.
“Putting in place a leadership that has legitimacy from the people, a democratic system is what is missing,” Sullivan added. “It is what will attract and keep investors, especially those who feared Egypt's market before.”
Hassanein, on the other hand, said that since Egypt's revolution is not exactly “being embraced” by the Middle East's most powerful economies, there may be repercussions.
“If the current government cannot deal with the issues we face, and this affects the economy, the situation does not improve, and our federal reserves decrease, Egypt's ratings will also continue to decrease,” he said.

Richard Fox, senior director and head of Middle East and Africa Sovereigns for Fitch Ratings.


Clic here to read the story from its source.