Egypt's currency at risk
The power struggle between Egypt military and the self-proclaimed Islamist president-elect risks prolonging a financial crisis that threatens to expedite a currency devaluation and trigger more credit-rating cuts. One-year Egyptian pound forwards weakened to a record after the military took steps to curtail powers of the president chosen in the country's first free election.
The Muslim Brotherhood, which declared its candidate Mohamed Mursi the victor, said it will join other political groups in a mass anti-military protest yesterday. Egypt's default risk rose to the highest since 2009, placing the country among the world's top 10 riskiest credits, according to data provider CMA. Immediate concern "The immediate concern is the currency if the conflict deteriorates," Alia Mamdouh, an economist at Cairo-based investment bank CI Capital, said by phone on Monday. "The problem from day one was the prolonging of the transition period, and now they are extending it again. It's like getting out of one maze to find ourselves in another." 'Weak prime minister' Another reduction would put Egypt's credit worthiness one level above Caa1, a class Moody's gives to issuers "of poor standing" which "are subject to very high credit risk." One-year non-deliverable pound forwards weakened to 7.95 a dollar, indicating investors expect the currency to slump 24 per cent in 12 months from a spot rate of 6.0498 a dollar.
The pound is subject to a managed float. The yield on Egypt's 5.75 per cent dollar bonds due in April 2020 climbed 10 basis points, or 0.1 percentage point, on Monday to seven per cent, the highest since May 21, data compiled by Bloomberg show. The IMF has linked approval of its aid agreement to attaining broad political consensus behind the government's economic programme.