S&P Global Ratings maintains Egypt’s rating at B; Outlook revised down to negative

Updated 4/26/2023 7:41:00 AM

Arab Finance: S&P Global Ratings has affirmed the local and foreign currencies credit ratings of Egypt at “B”; however, it has lowered its outlook for the country from stable to negative, the agency stated on April 21^st.

The agency expected Egypt's high external financing needs to be largely met by multilateral and bilateral lenders, but noted increased risks associated with disbursement of funds.

“The negative outlook reflects risks that the policy measures implemented by the Egyptian authorities may be insufficient to stabilize the exchange rate and attract foreign currency inflows to meet the sovereign's high external financing needs,” S&P Global said.

S&P revealed that there is a chance to further lower its outlook for Egypt within the next 12 months, if the multilateral and bilateral lenders funding is not sufficiently met.

The credit rating agency took a more pessimistic stance than what was announced by the International Monetary Fund (IMF) regarding the financial situation in Egypt, expecting a further devaluation of the local currency.

It forecasted the Egyptian pound to decline by 53% by the end of the current financial year (FY) 2022/23, and will be followed by a modest drop within the next few years.

“In our view, a key component of the recent sharp currency depreciation has been commercial entities hoarding foreign currency earnings, given the uncertainty regarding the Egyptian pound's value,” it said.

According to S&P Global Ratings, Egypt's economic growth would hit 4% over the next three years.

Egypt’s current account deficit is expected to drop to about $13 billion in the upcoming FY and will remain near this level until the FY 2025/26.

Inflation is expected to average 23% for the current FY, and 18% for the next one, S&P Global Ratings said.

“We expect the government to continue fiscal consolidation and economic reforms over the next two to three years, absent a significant increase in social unrest. We assume President Sisi will win reelection in 2024 and lead the government in its pursuit of the key tenets of the IMF program,” the agency added.

Meanwhile, Egyptian Finance Minister Mohamed Maait said that S&P’s move to lower its outlook for Egypt is due to the challenging external pressures on the country's economy.

Maait added that the government is keen to implement what it was announced in December 2022 of structural reforms, especially resuming the governmental initial public offering (IPO) program to attract more foreign direct investments.