Egypt, beset by turmoil as protestors seek to unseat President Hosni Mubarak, saw its outlook cut Friday by Fitch Ratings to negative. It had been at BB+. On Monday, the nation suffered a second financial blow as Moody’s dropped its rating a notch and changed its outlook to negative as well. It had been Ba1 and is now Ba2.
With currency flowing out of the country as worried residents and investors pull funds to safer havens, Reuters reported that an analysis of the nation’s financial condition revealed that, if protests continue for weeks instead of days, Egypt could see its reserves seriously depleted. Protests began on Tuesday, which was a bank holiday. The two working days that followed saw the exit of hundreds of millions of dollars from the country as both Egyptian citizens and tourists fled, according to currency traders’ estimates.
While no official figures are available, some bankers estimated that outflows from the country might have run to at least $500 million per day last week; one banker, who declined to be identified, said his bank alone had sent off $150 million in two days.
Security concerns, according to the government, were the reason that it closed the markets and the commercial banks on Sunday; they were to remain closed on Monday as well. That halted plans to auction off 4 billion Egyptian pounds ($685 million) of short-term Treasury bills on Sunday, since there were no banks available to purchase them. Now it is not known when the sale will proceed.
If banks do not reopen quickly, it could fuel a panic; however, it is not known whether they will be able to do business as usual once they do reopen. Overnight Egyptian pound deposits between banks saw the offshore rate skyrocket to 19% in the last week; for the rest of January the rate had only been around 6%.
There is also the question of whether Egypt will support the value of its pound. Analysts expressed concern that continued expenditures on subsidies, wages, and social spending, in an effort to ward off further protests and violence, will deplete the nation’s reserves. But protests, which arose, partly, over rage at price increases, high unemployment, and the huge gap between rich and poor, will certainly not stop if action is not taken to ease the burden of monetary woes.