Fitch downgrades Egypt's credit rating to B; Outlook remains negative
Updated 5/7/2023 7:03:00 AMArab Finance: Fitch Ratings has downgraded Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’, with a negative outlook, the leading credit rating provider revealed in a press release on May 5th.
Fitch attributed its decision to the country’s high external financing needs and "the sensitivity of Egypt's broader financing plan to investor sentiment” amid uncertainty of local currency policy.
The agency shed light on the risk of undermined confidence if the country's transition to a flexible exchange rate policy is delayed, which may also lead to a delay in the implementation of the International Monetary Fund's (IMF) program.
Fitch added that it has also taken into account the deterioration of public debt indicators, which would pose a threat to debt sustainability in the medium term if not adjusted.
In addition, Fitch expects a further devaluation of the Egyptian currency before it stabilizes in the fiscal year (FY) 2023/24.
The credit rating agency added that Egypt would face difficulty in securing its external financing needs in FY 2023/24, and attributed this to the increase in the value of external debts that are due for repayment to $7.2 billion, compared to $4.3 billion in the current FY.
At the same time, Fitch forecasts the country's current account deficit to drop to 3.3% of gross domestic product (GDP) in the current and next FYs.
Furthermore, general government debt is likely to increase to 96.7% of GDP in FY 2022/23, compared to 86.6% in the elapsed FY, according to Fitch.
Egypt’s inflation would reach 24% during the current FY, before declining to 18% in the next FY, the credit rating agency projected.
On April 21st, S&P Global Ratings 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.
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