Egypt debt rating downgraded by Standard & Poor's

Standard & Poor's today downgraded its rating on Egypt and warned that another cut was possible as a week of violent protests demanding the ouster of the president has almost crippled the nation and ground the economy to a virtual standstill.

S&P became the third international ratings agency in under a week to downgrade Egypt because of the unrest that has gripped the Arab world's most populous nation. Demonstrators have focused their anger on a leader they say is sorely out of touch with their daily economic plight.

Egypt's long-term foreign currency sovereign rating was lowered to BB from BB+, S&P said. The cuts still left the rating within the investment grade category, but reflected the increasing alarm with which investors are viewing the developments in Egypt. S&P warned that it could issue another downgrade - possibly by more than one notch - within the next three months.

"The rating actions reflect our expectation that the violent demonstrations of the past week will persist, despite the appointment of a vice president and the dismissal of the government by President Hosni Mubarak," said S&P credit analyst Kai Stukenbrock.

Yesterday, Moody's cut its rating for Egypt's government bonds, placing it solidly in junk status. Moody's, in a step taken by ratings agency Fitch days earlier, also lowered its outlook on the country from stable to negative.

S&P, echoing its ratings peers, warned that the political instability and unrest will hamper Egypt's economic growth this year, in no small part because of the blow to the vital tourism sector. Foreigners, and Egyptians, are fleeing the country in droves, with several nations sending in evacuation flights while travellers who had booked trips are quickly cancelling.

The agency also lowered its long and short-term local currency ratings to BB+/B from BBB/A-3, while the short-term foreign currency rating of B was unchanged.