The political differences between the two candidates likely to be in Egypt’s run-off presidential elections could exacerbate social unrest and prolong political stalemate, according to Fitch Ratings.
However, even though tensions are likely to rise before the next election, in the longer term both candidates favour policies that could stabilise the sovereign’s credit profile.
The two candidates polarise popular opinion, with former Prime Minister Ahmed Shafik claiming that the Muslim Brotherhood’s Freedom and Justice party candidate Mohamed Mursi will turn the country into a theocracy. Mursi claims Shafik is a return to the Hosni Mubarak regime. Preliminary results as of today indicate that in total both candidates received about 50% of the reported vote, and there was only an estimated 45% turnout, meaning there are large sections of the population who will feel disenfranchised whichever candidate wins.
The split vote means political stability is likely to return more quickly if the eventual president appoints an inclusive cabinet. This would be particularly important in the event of a Mursi victory because the Muslim Brotherhood dominates parliament. Mursi has already indicated that he may appoint his vice-presidents from outside the party.
Political tensions even after the presidential investiture could further delay a restart of critical talks with the International Monetary Fund and the resumption of foreign direct investment. However, we believe the government will endeavour to meet the requirement to finalise a budget by 30 June. Egypt’s ‘BB-‘/Negative rating will remain under pressure until a government is able to implement a comprehensive economic programme that attracts external support and foreign investment.
The Muslim Brotherhood’s parliamentary majority means the political focus after the presidential run-off election may be on constitutional reform rather than economic management. The Brotherhood favours a rewriting of the constitution to strengthen parliament at the expense of the president, which Mursi may accept. A Sahfik victory meanwhile would pit executive against legislature and result in slow progress while the two bodies resolve how to work with each other.