Morgan Stanley (NYSE:MS) has downgraded Egypt's sovereign credit rating, citing a series of fiscal constraints and looming risks. The downgrade comes amid concerns over the country's swelling financing needs, which stand at $24 billion this fiscal year, and a disappointing performance in terms of foreign direct investments and asset sales.
The bank's Global EM Strategist report further spotlighted the upcoming December presidential elections, which it sees as a potential obstacle to crucial policy reforms. These include the introduction of a flexible exchange rate, a measure suggested by the International Monetary Fund (IMF) as part of a $3 billion program.
In addition to these factors, the possibility of interest rate increases is seen as another potential exacerbator of market challenges. The depreciation of the national currency has been identified as an additional issue compounding Egypt's financial woes.
Moreover, the deferred Moody’s credit rating report on Egypt presents the risk of a downgrade to a Caa1 rating. Such a move could potentially trigger forced selling in the market.
Adding to these concerns is an upcoming $5 billion debt maturity borrowed from Emirati First Abu Dhabi Bank and Emirates NBD, supported by Gulf Cooperation Council countries. This situation is further complicated by Capital Intelligence's recent downgrade and Egypt's ongoing efforts to finalize $4.8 billion worth of privatization deals under the aforementioned IMF loan agreement.
The Russian-Ukraine conflict has also had its impact on Egypt's economy, inciting risk aversion and triggering devaluation and inflation in the country, once known as a hot money destination with some of the world’s highest interest rates.
These various factors have led to Morgan Stanley's decision to downgrade Egypt's credit rating, pointing to an increasingly challenging economic landscape for the country.
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