Slowing growth may stoke unrest in Egypt
Egypt’s economy may fail to meet the government’s growth target, a survey showed, threatening the country’s recovery from an uprising that ousted president Hosni Mubarak this year.
Economic growth may slow to 1.6 per cent in the fiscal year that started this month as private investment falters, according to the median estimate of 10 economists. Egypt’s government is predicting an acceleration to 3.2 per cent from the previous fiscal year’s 2.6 per cent. Prior governments had said 7 per cent is needed to keep joblessness from rising.
“The biggest danger is unemployment because it could lead to social unrest,” said Mona Mansour, co-head of research at Cairo-based investment bank CI Capital, who is forecasting a growth rate of 1.8 per cent. “For investors to come there has to be security and political stability.”
Slower growth and a widening budget deficit may also imperil Egypt’s credit rating, Mansour said, at a time when renewed protests are prompting investors to demand more money for the risk. The extra yield investors demand to hold Egyptian debt over US Treasuries rose 15 basis points last week to 323, according to JPMorgan Chase’s Global Emerging-Market Index. Middle Eastern debt yields on average rose 1 basis point to 349, the data show.
Rising unemployment
Fitch Ratings cut Egypt’s credit rating one level, to BB, on February 3, leaving it two levels below investment grade. Moody’s Investors Service said in June the ‘political environment’ was the main source of uncertainty in the most-populous Arab country.
It lowered its rating of Egypt twice this year to Ba3, three levels below investment grade.
Egypt’s default risk surged 12 basis points last week, the third-highest rise in the Middle East and North Africa after Dubai and Morocco, to 333, according to data provider CMA.
They rose seven basis points on Monday to 340, the highest level since May 30, according to CMA, which is owned by CME Group and compiles prices quoted by dealers in the privately negotiated market.
The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if a government or company fails to adhere to debt agreements.
Mubarak was toppled as protests against police repression, corruption and high food prices turned into demands for an end to his three-decade-rule.
Joblessness rose three percentage points to 11.9 per cent in the first three months of 2011, while the rate among people aged between 25 and 29 was 23.5 per cent, according to the state-run statistics agency. The economy contracted 4.2 per cent in the same period.