Egypt’s bonds lose value following Moody’s downgrade

Egypt’s sovereign dollar bonds faced a significant decline in value following a downgrade by Moody’s, which pushed the country’s credit rating deeper into junk status. Moody’s downgraded Egypt’s rating from “B3” to “Caa1,” citing concerns about the country’s deteriorating debt affordability. This downgrade adds pressure to Egypt’s already challenging economic situation, characterised by high inflation, mounting government debt, and a sharply depreciating currency. Many of Egypt’s sovereign dollar bonds saw declines, with some trading at their lowest levels since May.

Egypt had already devalued its currency significantly in the year leading up to March, cutting its value in half. However, the International Monetary Fund’s Director, Kristalina Georgieva, stated that Egypt would continue to experience a depletion of its reserves unless it devalues its currency further. She also mentioned “constructive engagements” with Egypt and anticipated more collaboration between the IMF team and the government in the coming weeks.

Egypt is heading into presidential elections in December, with President Abdel Fattah el-Sisi expected to secure another term. While a few politicians have announced their candidacy, none are seen as serious challengers to President el-Sisi.

In response to the country’s foreign exchange shortage, at least two Egyptian banks suspended the use of Egyptian pound debit cards for transactions outside the country. This move aims to conserve foreign currency reserves, as many cardholders had been making bulk purchases, often in the United Arab Emirates, to take advantage of the official exchange rate, which is much lower than the black market rate. Other banks were expected to follow suit with similar restrictions in the near future.

Banks in Egypt have also been implementing measures to limit the amount of foreign currency that clients can purchase within the country and how much they can charge to their credit cards when abroad as they grapple with the currency crisis.