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Moody's downgrades Egypt debt

By Sunil Kumar Singh/AFP

Rating agency Moody's said Monday it had downgraded Egypt's debt rating by one notch to "Ba2", with a further downgrade possible in the medium term.

Moody's explained in a statement that its decision was prompted by the "recent significant rise in political event risk," in the country.

The ratings agency added that it was concerned over "deep-seated political and socio-economic challenges. These include a chronic high rate of unemployment, elevated inflation and widespread poverty. These, together with a desire for political change, have fueled popular frustrations."

Moody's warned that it would "downgrade Egypt's sovereign ratings again if there were a substantial escalation of political volatility, a large fiscal slippage, or evidence of lasting economic damage."
Meanwhile, the spate of a week-odd long civil unrest in Egypt has taken its toll on the dirham- Egyptian pound (EGP) exchange rate, with the latter falling against the former significantly.

While on January 4th, one dirham would fetch around 1.576 EGP, on Monday the pound fell to 1.594 against dirham.
Currency analysts believe the pound could further weaken against dirham going further if the unrest lingers.
"Currency movements do reflect macro and political situations pretty vivid. With respect to UAE-AED, Egyptian pound (EGP) has weakened significantly over the last week. As far as I understand it's probably the weakest since more than half a decade. If tensions mount or refuse to abate, then expect further weakness in the currency," Pradeep Unni, Senior Research Analyst and Trader at Dubai-based Richcomm Global Services, told Emirates 24|7.