Having reached rock-bottom during the second quarter, Egypt’s ECR score rebounded slightly during Q3 2013 (see chart), pushing this high-risk sovereign up four places in the global ECR rankings to 132nd globally.
The country was one of only five Middle East and North Africa (MENA) sovereigns to see its risks ease during the quarter; others included high-flying Qatar and Israel (see ECR results Q3 2013).
Egypt’s fall from grace is well documented. The instability surrounding the fall of former president Hosni Mubarak put paid to earlier improvements in its risk score, which stemmed from economic and structural changes spurred by his reform-minded government.
Since 2010, Egypt’s score has plummeted 20 points, to 30 out of 100 – some 15 points below the MENA average. Only Iraq, Yemen, Iran and Syria are considered more risky – all five are within the lowest of ECR’s five tiers, symbolizing the highest possible investor risks.
The sovereign – rated B- (negative) by Fitch, Caa1 (negative) by Moody’s and a stable CCC+ by S&P – saw 11 of its 15 risk factors improve slightly in September, albeit from very depressed levels.
Tourism and foreign investment have been deterred by the instability, and with a third year of low growth around 2% – also undermined by labour disputes, inflation hovering around 10% and a current account deficit of some 2.5% of GDP – unsurprisingly none of Egypt’s five economic assessment factors scores more than four out of 10.
Government payments/non-repatriation, at 4.1, is the highest scoring of the six political risk factors. Structural indicators are similarly low.
However, some modest improvements are expected by ECR economists after the overthrow of president Mohammed Morsi.
The central bank has lowered interest rates twice since the new cabinet was installed in July, and a fiscal stimulus is promised along with the repayment of arrears to oil and gas companies. Coupled with foreign aid boosting the current account, the IMF is predicting faster growth for next year and an improving balance of payments.
ECR expert Samir Gadio, emerging markets strategist at Standard Bank, has his doubts that the transitional government can deliver the reforms needed to generate a sustained rebound in investment and tourism, but writing in August he said: “In the short-term we do not see the further slide and bull steepening of the yield curve placing undue pressure on the currency.
“The fiscal position could certainly use the benefit from lower debt servicing costs."
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