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31-01-13

Fitch lowers Egypt ratings by a notch, outlook negative

(MENAFN) Egypt has lost its long-term foreign and local currency ratings by a notch from Fitch Ratings, citing a weaker economy and political instability and deteriorating foreign reserves, AFP reported. The ratings agency lowered Egypt's ratings to B from B+ with a negative outlook. Fitch said Egypt's fiscal position has worsened, with spending on subsidies, interest payments and the public-sector wage bill rising and a weak economy eating into revenues. Fitch added that diminishing foreign exchange reserves have prompted the authorities to tighten capital controls and introduce foreign exchange auctions. Fitch also said that inflows from some creditors have kept reserves around three months of current account payments cover. However, without the IMF loan, depreciation would continue drying reserves, leading to higher inflation in an import-dependent economy and to lifting the subsidy bill. Fitch also indicated to the ongoing political turmoil for nearly two years, which caused economic growth to deteriorate. Fitch expected Egypt's real GDP to grow an average of 3.3 percent this year and the next, which is far from the necessary to generate sufficient job opportunities for the 700,000 new entrants to the labour force each year. The ratings agency warned of another downgrade if there is any delay to an IMF programme beyond the second quarter of this year, or if there is an abrupt depletion of reserves and a disorderly devaluation of the currency.

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