S&P downgrades Egypt

Ratings agency Standard & Poor's has downgraded Egypt's credit rating further as the ongoing upheaval in the country continues.

S&P said the both the country's long-term foreign and local-currency sovereign credit
ratings had been cut to 'B' from 'B+'.

It justified the downgrade by warning Egypt's external financing risks have risen significantly, after foreign direct investment tumbled in the wake of the revolution.

The Egyptian Central Bank has been forced to inject stimulus into the economy to counter outflows, but S&P said this had caused a sharp decline in its international reserves.

The agency said: "We believe the sharp decline in Egypt's foreign exchange reserves, in combination with on-going political uncertainties, are weakening sovereign policy flexibility."

S&P said it expects the country's position to weaken further due to "absent stabilisation in the domestic political situation alongside external financial support", and it therefore instigated a negative outlook on the rating.

"The negative outlook reflects our view that a further downgrade is possible if the government fails to stem the decline in reserves, or an uncertain policy environment and weak institutions emerge from the on-going political transition."

S&P also cut its ratings for France, Italy, Spain, Cyprus, Portugal, Austria, Slovakia, Slovenia and Malta last month, stripping France and Austria of their AAA status.