Fitch cuts Egypt outlook to stable on inflation risk

Report says Egyptian monetary tools for curbing price rises still 'weak'.
Fitch cuts Egypt outlook to stable on inflation risk
By Carolyn Cohn
Mon 18 Aug 2008 11:47 PM

Ratings agency Fitch lowered Egypt's ratings outlook to stable from positive and cut the country's local currency debt rating to BBB- from BBB on Monday, citing the risk to inflation from rising food and fuel prices.

Fitch kept Egypt's foreign currency rating at BB+, the agency said in a statement.

"This year's surge in global food and fuel prices has increased the challenges facing Egypt's policymakers," said Richard Fox, head of Middle East and Africa Sovereign Ratings at Fitch in the statement.

"The power of Egypt's monetary tools to curb inflation is still quite weak, raising the prospect of double-digit inflation continuing well into next year."

Egypt's urban inflation stood at 22 percent in the year to July.

Fitch said Egypt's external finances were a strength but reform was key to any ratings improvement.

"A stalling of reforms or an ineffectual policy response to future shocks would prompt negative rating action," Fitch said.

The outlook downgrade by Fitch follows a similar move by Moody's earlier this year, after Egypt in May agreed steep rises in fuel prices to cover public sector pay increases.

"This outlook downgrade is on the back of the fiscal position following the new measures that were taken in the spring," said Shahin Vallee, emerging markets strategist at BNP Paribas.

Egypt has been planning a Eurobond of up to $2 billion by September, postponed from earlier in the year due to market turmoil. The bond was due to be denominated in Egyptian pounds but payable in US dollars.

"The Eurobond might be delayed," Vallee said. (Reuters)

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