S&P downgrades Egypt rating on political tensions

Standard and Poor's ratings agency said today it has cut its long-term rating on Egypt by one notch to 'B+' as popular unrest undercuts the country's already weak political and economic outlook.

"The downgrade reflects our opinion that Egypt's weak political and economic profile... Has deteriorated further (following)... The clashes between protesters and security personnel that began on November 20 and resulted in significant loss of life," S&P said.

Last month, S&P downgraded Egypt to 'BB-,' citing increased risks to the economy during the country's political transition and warning it could lower it again if there was fresh turmoil.

Since Saturday, at least 38 protesters have been killed and more than 2,000 injured in clashes with police in Cairo's Tahrir Square, the epicentre of the popular uprising which forced Egyptian strongman Hosni Mubarak to step down as president earlier this year.

S&P said the violence has put increased pressure on Egypt's international reserves -- which have fallen to $22 billion at end-October from $36 billion at the start of the year -- weakening the country's economic profile.

"We assess the policy choices of Egypt's ruling Supreme Council of the Armed Forces (SCAF) -- such as allowing violence to escalate in Tahrir Square from November 20 in an effort to disburse protesters -- as having weakened the prospects of a smooth political transition to democracy and having reduced the ability of the government to place the public finances on a more sustainable path," S&P said.

It said it was difficult to predict policy responses in Egypt due to "a highly polarised political landscape and highly centralised decision making."

It said there was "an ongoing high, and recently increased, risk of challenges to political institutions that will possibly involve further domestic conflict."

"These challenges could arise if populist demands for greater political participation are thwarted, or from demands for improved living standards from different sectors of the population no matter who is governing Egypt," it added.

The S&P rating action came just as Egypt's military rulers for the deaths of the demonstrators in Tahrir Square.

"An agreement has been reached between security forces and protesters to halt confrontations between the two sides," the cabinet said in a statement on Facebook.