Morgan Stanley has downgraded Egypt’s sovereign credit rating, citing complications arising from the upcoming presidential elections that could pose a delay in the country’s ability to push through reforms that are conditional to a $3 billion International Monetary Fund programme.

The financial institution has moved Egypt’s sovereign credit to a ‘dislike stance’ from a ‘neutral’ one amidst ‘mounting risks’ over the country’s capital needs, which are estimated to be $24 billion in the fiscal year through June 2024.

According to Bloomberg, Morgan Stanley strategists have further said that a threat of a downgrade from Moody’s Investors Service looms on the horizon, which could lead to some forced selling.

The impact of the Russia-Ukraine conflict, coupled with a weakened pound, has reduced the appetite of risk for investors, according to bank analysts, with the currency devaluation sparking of high inflation in Egypt. Egypt’s non-oil business has also been facing a steady decline, with September’s Purchasing Managers’ Index (PMI) dropping to a four-month low of 48.7, indicative of the sector contracting further.

Investors are now monitoring Egypt’s syndicated loans, which are due in the second half of 2024, which include two facilities totalling $5 billion from UAE banks.

(Writing by Bindu Rai, editing by Daniel Luiz)