Fitch Ratings dropped Egypt’s credit rating by one notch to BB, which reflects the substantial and continuous erosion of Egypt's international reserves in 2011 and the unstable economic and political conditions, particularly after foreign reserves dropped to US$18 billion, only enough to cover the needs of the country for four months.

Fitch Ratings warned on Friday that further downgrades remain possible given the unstable political environment.

The agency downgraded the country’s long-term foreign currency issuer default rating to BB- from BB and long-term local currency issuer default rating to BB from BB+, citing continuous erosion of Egypt’s international reserves and ongoing political turbulence.

"The downgrade and Negative Outlook reflect the substantial and continuous erosion of Egypt's international reserves in 2011, which accelerated in October/November. Ongoing political turbulence is also delaying economic recovery and has contributed to worsened debt dynamics," says Richard Fox, head of Middle East and Africa Sovereigns at Fitch.

Moreover, public finances, a key rating weakness for Egypt, weakened further. It expects the general government debt/GDP ratio to breach 80 percent in 2012.

Abou Steit said that the rating is based on the country’s security conditions and its ability to combat administrative corruption. He added that further downgrades would be extremely dangerous.

The agency added that the ratings will remain under pressure until the political situation stabilizes and a government is able to implement a comprehensive economic program.

The rating action from Fitch follows a one notch cut by Moody's on December 21 and a downgrade by Standard & Poor's in November.

According to Egyptian economic expert Fouad About Steit, the recent unrest in Egypt has led to lower levels of production. He said that the drop in the credit rating would push the government to increase the interest on dollar bonds, which will further burden the state budget.

Abou Steit also expressed fears that the International Monetary Fund may change its terms for lending to Egypt, raising the interest on borrowing or imposing other stricter conditions.

Growth in financial year 2011/12 is likely to be no stronger than last year, at under 2 percent. Unemployment, a contributor to the February 2011 regime change, is still rising, at a time when aspirations have been raised. The global slowdown will be a further drag, according to Fitch.