Posted: March 24th, 2023
The credit rating is a systematic approach used in measuring the creditworthiness of a country. It plays an important role in measuring the credit value of the country concerned. The three most accepted ratings used across the world include Standard & Poor, Moody’s rating, and Fitch’s credit rating. Sovereign wealth funds, pension funds, as well as other interested investors consider the ratings from the three organizations to gauge whether it is worth to invest in the target country. In 2011, Standard & Poor, Moody’s rating, and Fitch’s credit for Egypt were B+, BB, and Ba3 consecutively. The ratings have since changed to B-, B3, and B, which is a general decline in the rating (Trading Economic, 2015a). The change in the ratings implies that foreign investors are likely to be less interested in investing in the sovereign bonds, treasury bills, or any other credit advancement to the government. The cost of borrowing is likely to be higher in Egypt today than it used to be in 2011.
Credit rating is influenced by various factors, including the political stability and economic prosperity. Concerning the political stability, Egypt has a stable and more acceptable government than it used to be in 2011, and hence the political threat is not the cause of the decline in the credit rating. However, there are elements of potentials security issues, particularly on the matter of terrorism, which could increase the risk of both the local and foreign investments. The economic indicators drive the credit rating of the country. The government debt is the most influential indicator by the relevant economic agencies in measuring the credit rating. The economic development and output of a country should create the capacity required for the repayment of the public debt. In fact, the public debt as a percentage of the totals GDP should be favorable. A high percentage of the indicator implies that the country may not afford to repay the debt from the internal sources. The growth in Egypt’s public debt to its GDP at 76.2% in 2011, and 90.5% in 2014 is, therefore, tangible explanation why the ratings have declined (Trading Economic, 2015b). It is important to note that the public debt to GDP has increased from 2009 to 2014 at a steady rate; hence, it is expected to continue unless relevant interventions are applied.
Place an order in 3 easy steps. Takes less than 5 mins.