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Macroeconomic Variables, Government Effectiveness and Sovereign Credit Rating: A Case of Egypt

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  • Osama M. Badr
  • Ahmed F. El-khadrawi

Abstract

Sovereign credit rating reflects the country ability to meet its financial obligations (at present and in future) on its maturities, therefore, it is an important indicator that concerns international financial institutions and foreign investors who are interested in foreign direct investment in order to know the minimum expectation of risks that can be faced in specific country. This paper aims to i) examine the effect of macroeconomic variables on the Egyptian sovereign credit rating (SCR) and ii) also investigate the impact of investment environment (measured by government effectiveness) on the SCR using the dynamic ordinary least squares (DOLS) method over the period from 1990 to 2014. The results indicate that GDP growth, inflation, fiscal balance, reserves, current account balance, public domestic debt, and the government effectiveness have a significant impact on the sovereign credit rating in Egypt. This study has important implications for investors and policymakers.

Suggested Citation

  • Osama M. Badr & Ahmed F. El-khadrawi, 2016. "Macroeconomic Variables, Government Effectiveness and Sovereign Credit Rating: A Case of Egypt," Applied Economics and Finance, Redfame publishing, vol. 3(4), pages 29-36, November.
    • Handle: RePEc:rfa:aefjnl:v:3:y:2016:i:4:p:29-36
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    References listed on IDEAS

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    1. Peter Rowland, 2004. "Determinants Of Spread , Credit Rating And Creditworthiness For Emerging Market Sovereign Debt: A Panel Data Study," Borradores de Economia 2336, Banco de la Republica.
    2. António Afonso, 2002. "Understanding the Determinants of Government Debt Ratings: Evidence for the Two Leading Agencies," Working Papers Department of Economics 2002/02, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    3. Álvaro Rojas O. & Felipe Jaque S., 2003. "Determinants of the Chilean Sovereign Spread: is it Purely Fundamentals?," Money Affairs, CEMLA, vol. 0(2), pages 137-163, July-Dece.
    4. Budina, Nina & Mantchev, Tzvetan, 2000. "Determinants of Bulgarian Brady bond prices - an empirical assessment," Policy Research Working Paper Series 2277, The World Bank.
    5. António Afonso & Pedro Gomes & Philipp Rother, 2011. "Short‐ and long‐run determinants of sovereign debt credit ratings," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 16(1), pages 1-15, January.
    6. G. Ferri & L.-G. Liu & J. E. Stiglitz, 1999. "The Procyclical Role of Rating Agencies: Evidence from the East Asian Crisis," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 28(3), pages 335-355, November.
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    Cited by:

    1. George Zairis & Antonios Zairis, 2020. "The Role of Macroeconomic Variables in Sovereign Risk," Issues in Economics and Business, Macrothink Institute, vol. 6(1), pages 1-19, June.

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    More about this item

    Keywords

    sovereign credit rating; GDP growth; inflation; current account balance; public domestic debt and government effectiveness;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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