Egypt is now among the ten riskiest sovereigns in the world, according to the latest report from CMA Datavision. In other words, Egypt is among the nations most likely to default on its debt.
While that does not necessarily mean that Egypt will default, its spread has risen as investors are nervous that the country could default.
"Investor concern on Egypt's potential default and drawn out political transition saw the spreads widen to 621bp and implied rating to CMA_b+. S&P also downgraded to B+ in late November," says the independent credit default spread (CDS) tracker, which rates virtually all sovereigns, and publishes a report every quarter.
Egypt also had the third worst quarterly performance in the world, behind Greece and Slovenia, rising by nearly 35% in the fourth quarter of the year.
While Egypt is in the middle of historic elections, the country's security and fiscal situation has deteriorated over the year in the aftermath of a revolution that ousted Hosni Mubarak. Despite the earlier euphoria, tensions between civilians and the ruling Supreme Council of Armed Forces (SCAF) have risen over the past few months.
"By December Egypt's reserves had fallen to USD18 billion, marking a 50% year-on-year drop, with the SCAF expecting a further drop to USD15 billion end of January - enough to cover the country's imports for only three months," says Cairo-based CI Capital Research.
The interim government has also confirmed it will resume talks with the International Monetary Fund (IMF) over an emergency USD3 billion credit facility, which is a something of a U-turn after it had rejected a similar loan last June.
But while Egypt saw its economic prospects wobble, Dubai is finally out of the list of the top ten sovereign most likely to default. [For the purposes of this report, CMA treats Dubai and Abu Dhabi as two sovereign states].
Read commentary on last quarter's report here: How Safe Is Your Debt?
Dubai's five-year Mid bps have fallen to around 450 by the end of 2011 from 490 by the end of the third quarter.
Dubai's total debt is around USD101.5 billion, including USD33.7-billion from state-owned corporates. Close to USD3.8-billion of the debt is expected to mature this year, says ratings agency Moody's.
Most analysts expect the Dubai government to meet its obligation without major hiccups.
In fact, apart from Egypt, the rest of the Middle East and North Africa remained relatively stable and flat over the quarter. But while two Mideast states - Abu Dhabi and Saudi Arabia - were among the ten safest sovereign in the last survey at the end of the third quarter, they appear to have slipped out of the top ten by fourth quarter.
Now Qatar is the safest sovereign in the region, and 11th safest in the world, followed by Abu Dhabi, 12th, and Saudi Arabia, 13th.
EU CONCERNS
The world's attention has shifted from Arab nations to the north where the EU states are virtually basketcases of debt.
Greece, which has been leading the CMA Datavision list of the world's riskiest sovereigns for the past few quarters, extended its leading once again, rising 57% - the worst quarterly performance in the year.
"A restructuring and write-off of Greek debt remains an almost certain event," says CMA. "However the debate continues as to whether a default will be triggered or whether the debt swap plan will be accepted by bond holders. Five year upfront protection in Greece closed at 66% on the December 29, with the 2015 bonds closing at 24% according to CMA Datavision Bonds. As 15% of the current debt swap plan is cash, either the new bonds are worth 9% or the market is assuming the debt swap plan will not be accepted by bond holders."
There are no less than five European nations in the 10 riskiest sovereigns, which shows the magnitude of issues faced by European nations.
This will only get worse as on January 13, S&P cut the ratings of Italy, Spain, Portugal and Cyprus by two notches and the standings of France, Austria, Malta, Slovakia and Slovenia by one notch each.
However, Europe was a continent of contrasts. Norway emerged as the least risky sovereign in the world, a position it has held all year. There are six European nations among the ten safest sovereigns.
Interestingly, despite Germany's exposure to the troubled EU nations, it has crept in to the list of the ten safest sovereigns in the world.
The USA, the second safest sovereign in the world, dipped below 40bp mid-quarter but widened back out with the rest of the market in November; closing the year below 50bp, 3bp tighter on the quarter.
© alifarabia.com 2012
