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The agency says Egypt’s worsening debt affordability led to its decision to cut the country’s credit rating.
Egypt’s sovereign dollar bonds have tumbled after ratings agency Moody’s downgraded the country’s credit rating deeper into junk territory, ramping up the pressure on the cash-strapped nation as it heads into elections in December.
On Thursday, Moody’s moved Egypt down one notch to “Caa1” from “B3”, seven levels into junk, citing the country’s worsening debt affordability.
The country is in the throes of a bruising economic crisis, with record inflation, crushing government debt and a plunging currency that has driven more of its citizens to seek risky routes out of the country.
All of Egypt’s sovereign dollar bonds slid lower, with most trading at their lowest since May.
Egypt has downgraded its pound currency to half its former value in the year to March.
However, on Thursday, International Monetary Fund (IMF) Director Kristalina Georgieva told Bloomberg that Egypt will continue to “bleed” reserves unless it devalues again.
Georgieva also told Bloomberg there had been “constructive engagements” with Egypt, adding that she expected “more systematic work” between the IMF team and the government in the coming weeks.
Debit card use restrictions
Meanwhile, at least two Egyptian banks this week suspended the use of Egyptian pound debit cards outside the country to stop a drain on foreign currency.
Arab African International Bank sent a notice to customers on Wednesday and Arab International Bank sent one on Thursday announcing the suspension, according to several customers speaking to the Reuters news agency.
A customer representative for Arab African International Bank confirmed the move, saying it was due to the country’s foreign exchange shortage, Reuters reported.
One banker in Egypt said all banks were facing similar problems as a result of the currency shortage, but that each was taking decisions separately.
A substantial number of debit card holders had been using cards to make bulk purchases, often in the United Arab Emirates, of gold, mobile telephones and other products to take advantage of the Egyptian pound’s low official exchange rate.
Debit card transactions are charged at the official rate of about 31 pounds to the dollar whereas on the black market, a dollar sells for approximately 40 pounds. Egypt has kept its currency fixed against the dollar since March despite a widening gap with the black market rate.
“Sometimes they just send the cards (without leaving Egypt), and they buy things with them. You find there are four or five people from the same family,” the banker told Reuters.
Other banks were likely to introduce similar restrictions next week, the banker added.
Banks in recent months have also been tightening up on the amount of foreign currency clients can buy in Egypt and on how much they can charge to their credit cards while abroad.
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