Gulf aid have saved the state’s credit rating
Cash reserve must be built by local production and investments rather foreign aid and loans
Talk that the credit rating system is an insufficient policy…and the state is able to fulfill it’s foreign policy obligations
AmrHassanen, head of Mieres Middle East, suspects that stability of Egypt’s current credit rating agencies is due to the $12 billion dollar aid Egypt received from the Gulf States, assuring that the country’s credit rating had reached a very critical level after dropping to +CCC.
He noted in his interview with “Amwal Al Ghad” the need for political stability and security in order to maintain the state’s cash reserve from dropping, especially after cash reserve having reached $18.7 billion during the end of September. He stressed the importance of building the state’s cash reserve by a foundation of local production and investments rather than loans and grants especially since the January 2011th revolution cot the state more than $30 billion.
He noted that the credit rating of the Egyptian state has reached a very critical state where according to credit rating institutions such as “Standard and Poor’s” or “Moody’s” at the bottom of the list with a very low rating and the government was asked to take reforming procedures to stop the series of decorations of the state’s reserves and economy, and to prevent the tragedy of the state reaching a stage where it would be difficult to stabilize its economy.
Credit rating agencies take into account when assessing the credit performance of a state, factors of its institutional foundations and its compatibility with the population concerning issues pertaining to judicial authorities and legislative elections, a constitution and communal cooperation. If these factors are not in cooperation with each other, credit rating immediately falls, which is what happened during the rule of the Muslim Brotherhood because of the populations objections to the constitution drafted by them.
He continued adding that credit rating agencies also take into account other factors that represent all the country’s economic rates, budget deficits, the strength of its cash reserves of foreign currencies and the public debt to GDP.
On the question of Egypt’s credit rating by International rating agencies and accusing their ratings as bias, he assured that the credit rating is a look to the future and he emphasizes its credibility since their rating of country is never final.
Looking at the situation in Egypt we find that credit rating agencies reduced their ratings of Egypt 4 weeks after the January revolution although the ratings were not reduced according to Egyptian agencies. As time went by the ratings of the international agencies proved accurate given that the country later lost half of its cash reserves of foreign currencies. If it wasn’t for the monetary aid and the grants that the country received, Egypt’s budget deficit would have risen dramatically. He adds that the country’s currency declined significantly in comparison to foreign currencies.
He added that the country’s current circumstances might affect its rating, since the conflict in Egypt now is not only local, it is international and the whole world is watching, peace has to be achieved between different sects. It is expected that in these conditions that Egypt’s credit ratings will decline, since foreign investors will not be tempted to invest in a country that has no security or political stability. Security and political stability are essential for the progression of the Egyptian economy.
The Director of Mieresstates that the decrease of the Egyptian banks credit rating is due to the country’s rating and the banks investing a large portion of their funds in treasury bills, along with the country’s lack of supply of dollars. It is natural for the bank ratings to be lower than the country’s rating even if the banks are financially sufficient.
The current credit rating of the country will not be affected by the IMF loan to Egypt worth 4.8 billion dollars, Hassanien adds that the IMF has cooperated with Egypt during the recent period and despite the country’s economic and political circumstances, loans are dependent on programs and economic reform plans that are set by the IMF.
Hassanien emphasized that the foreign aid and loans that the state has received, has helped Egypt keep its commitments and external obligations. However the country will face dangers if its political situation remains uncertain. He adds what is known about Egyptian politics is much more than what is known.
He concluded that the centeral Bank of Egypt manages the country;s fiscal policy very efficiently although it faces many challenges. The most noticeable of these challenages is the often changes in the appointment of the Minister of Finance, which causes difficulties for the coordination between fiscal and monetary policies. Neither of these policies can print money that is not based on production and economic stability, and economic stability cannot be achieved without political stability.
