May 9, 2013 / 4:56 PM / 6 years ago

UPDATE 2-S&P cuts Egypt's credit rating further, cites absence of fiscal plan

* IMF says not currently planning new mission to Egypt

* Consumer inflation climbs to 8.1 pct in April

* Deficit for 9 mths to end-March at 10.1 pct of GDP

By Patrick Werr

CAIRO, May 9 (Reuters) - Standard & Poor’s cut Egypt’s credit rating further into junk territory on Thursday, saying Cairo had yet to come up with a plan to control its finances, leaving the country vulnerable to a balance of payments crisis.

Egypt has been in crisis since a popular uprising ousted Hosni Mubarak in early 2011, and has run through more than $20 billion in reserves, borrowed billions more from abroad and delayed payments to oil companies to support its currency.

Newly appointed Finance Minister Fayyad Abdel Moneim said in remarks published on the ministry website that he was preparing a series of measures to keep costs under control after the budget deficit rose to 10.1 percent of gross domestic product in the nine months to March.

Consumer inflation rose to 8.1 percent in March due to rising food and energy prices and a weak currency, separate data showed, and is expected to rise further. The central bank left interest rates on hold at a meeting on Thursday, however, saying last month’s rate rise had yet to make itself felt.

S&P cut Egypt’s foreign and domestic long-term ratings to ‘CCC+’ and foreign and local short-term ratings to ‘C’ with a stable outlook.

“The downgrade reflects our view that the Egyptian authorities have yet to put forward ... a sustainable medium-term strategy to manage the country’s fiscal and external financing needs,” the ratings agency said in a statement.

Egypt said on Wednesday that its foreign currency reserves jumped by $1 billion in April to $14.43 billion, helped by a large deposit from Libya that analysts said would not resolve a currency crisis.

“Ad hoc bilateral loans and deposits are serving to support Egypt’s international reserve position at current low levels, buying Egypt a limited amount of time to deliver more sustainable public finances and avoid a balance of payments crisis,” Standard & Poor’s said.

Egypt is seeking a $4.8 billion loan from the International Monetary Fund. S&P, however, said Cairo’s progress on subsidies and other reforms, which are seen as a condition for IMF help, may not be enough to secure the external support Egypt needs.

“We believe Egypt’s foreign currency reserves could be further depleted should downward pressure on the exchange rate increase as a result of the ongoing political turmoil, expected double-digit inflation, or persistently large trade deficits,” it said.

INFLATION TO RISE

An IMF spokesman said on Thursday it was not planning another visit to Egypt to discuss the loan as it awaits new economic data and reform plans from the government.

“Staff are working actively with Egyptian authorities from headquarters,” IMF spokesman Gerry Rice told reporters.

Egypt requested the $4.8 billion loan in August, soon after newly elected President Mohamed Mursi of the Muslim Brotherhood appointed his government. An IMF team left Cairo in April without reaching agreement on the loan.

In December, Standard & Poor’s cut Egypt’s long-term rating to ‘B-‘ from ‘B’, saying another cut was possible if political turbulence worsened and undermined the country’s ability to make hard choices on public finances.

The Egyptian pound has weakened by almost 11 percent against the dollar since the end of 2012, adding to urban inflation which accelerated above 8 percent in April on an annual basis from 7.6 percent in March, the state statistics agency CAPMAS said on Thursday.

Annual core inflation, which strips out subsidised goods and volatile items including fruit and vegetables, rose to 7.47 percent from 7.03 percent in March, the central bank said.

Economists expect inflation will rise to 10.1 percent in 2013/14, ending June 2014, from 8.3 percent this fiscal year, according to a Reuters poll taken last month.

The Egyptian economy is poised to grow 2 percent this fiscal year, the poll forecast.

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