Fitch upgrades Egypt's rating to 'B' on improved economic stability, policy reforms
Updated 11/2/2024 12:00:00 AM
Arab Finance: Fitch Ratings has upgraded Egypt's long-term foreign-currency issuer default rating (IDR) to 'B' from 'B-', with a stable outlook, citing significant improvements in the country's external finances, fiscal policies, and economic resilience, as per a statement.
The decision reflects several key developments, including a strengthened foreign exchange buffer, increased foreign investment, and strategic fiscal adjustments.
Egypt’s external financial position has improved due to foreign investments, particularly from the Ras El-Hekma project, alongside increased non-resident investments in domestic debt and new funding from international financial institutions (IFIs).
This is further supported by Egypt’s shift toward a more flexible exchange rate and tighter monetary policies.
Since March, Egypt has secured an expanded $8 billion IMF extended fund facility (EFF) and a €7.4 billion European Union (EU) support package.
Fitch anticipates that foreign direct investment (FDI) will average around $16.5 billion across the fiscal years (FYs) 2024/2025 and 2025/2026, driven by new investments from Saudi Arabia and the Ras El-Hekma project.
These inflows are crucial to offsetting a widened current account deficit, which rose to 5.4% of gross domestic product (GDP) in FY2023/2024 but is projected to narrow gradually over the next two FYs.
Fitch added that the government has implemented initial measures to control fiscal risks, including a cap on public investment and the inclusion of additional economic entities within the general government budget framework from FY2024/2025 onward.
Fiscal policy adjustments, such as tax reforms and reduced fuel subsidies, helped contain the general government deficit, estimated at 3.4% of GDP in FY2023/2024.
Although Fitch projects the deficit to widen to 7.5% of GDP in FY2024/2025, partly due to one-time revenues from the Ras El-Hekma deal, the general government debt is expected to decline to 78.9% of GDP by FY2025/2026.
Despite gains, Egypt faces persistent geopolitical risks, especially given regional conflicts that could impact tourism and Suez Canal revenues.
Fitch expects a gradual recovery in these areas but warns that further escalations could strain Egypt's economic stability.
Domestic risks, including inflation and high youth unemployment, pose additional challenges to social stability and economic reform.
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