Fitch Cuts Egypt Rating to B- on Political Worries

Egypt’s credit rating was cut by Fitch Ratings on concern that the ouster of President Mohamed Morsi will damp economic growth and fan political instability.

The “military coup” that overthrew Morsi and the resulting political turmoil will set back the country’s economic recovery and make it harder to implement fiscal and structural changes needed to secure assistance from the International Monetary Fund, Fitch said today in a statement. The long-term foreign-currency rating was reduced one level to B-, or six levels below investment grade, with a negative outlook.

Fitch’s warning comes after Egypt’s stock market posted its biggest rally in more than a year yesterday, sending the benchmark index up 7.3 percent, on speculation the overthrow will open the way for a new government to take over with broader political support. The yield on Egypt’s $1 billion of dollar bonds due 2020 extended yesterday’s record drop, falling 0.26 percentage point to 9.03 percent as of 1:45 p.m. in New York.

“There’s a lot of uncertainty about how this will play out,” Steffen Reichold, an emerging-market economist at Stone Harbor Investment Partners LP, which oversees $66 billion of assets, said in an interview from New York. “People weren’t happy with how the last government managed the economy. Some think there’s a prospect for better policies going forward.”

Fitch’s rating gives Egypt the same classification as Greece, Cyprus and Ecuador, according to data compiled by Bloomberg. It is one level lower than Egypt’s grades from both Moody’s Investors Service and Standard & Poor’s. Politicians take charge and the IMF deal is expedited, he added.