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

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.