Moody’s maintains Egypt’s Caa1 rating with positive outlook

Updated 2/20/2025 2:33:00 AM

Arab Finance: Moody’s Ratings has affirmed Egypt’s Caa1 long-term foreign and local currency issuer ratings while maintaining a positive outlook, citing progress in external and fiscal rebalancing, as per a statement.

The agency also affirmed Egypt’s foreign-currency senior unsecured ratings at Caa1 and its foreign-currency senior unsecured MTN program rating at (P)Caa1.

“The positive outlook, in place since March 2024, continues to reflect the prospects for an improvement in Egypt's debt service burden and external profile,” Moody’s stated.

The agency noted that with the devaluation and flotation of the currency, Egypt has strengthened its foreign exchange buffers and borrowing costs have started to decline.

Moody’s highlighted that “monetary policy credibility and effectiveness is increasing as the central bank maintains a policy stance consistent with inflation targeting and a floating exchange rate regime.”

This, it added, should support further declines in policy rates, easing debt costs while fostering steady foreign-currency inflows. The government is pushing ahead with fiscal consolidation, including efforts to enhance tax revenues, aiming for a primary surplus of 3.5% of gross domestic product (GDP).

However, Moody’s warned that “credit vulnerabilities reflected in the Caa1 ratings continue to pose risk to Egypt achieving durable improvements in fiscal and external positions.”

It cited the country’s high, though declining, debt ratio, weak debt affordability compared to peers, and significant domestic and external financing needs as key constraints.

The agency cautioned that these vulnerabilities could make Egypt susceptible "to capital outflows in case of external shocks that could challenge the authorities' commitment to a floating exchange rate policy.”

Such a scenario, it said, could “result in the re-emergence of external imbalances and erosion of foreign-currency buffers.”

The local-currency ceiling remains at B1, while the foreign-currency ceiling stands at B3.

Moody’s explained that the three-notch gap between the local-currency ceiling and the sovereign rating “reflects a large and diversified economy with a large public sector footprint that inhibits private sector development.”

Meanwhile, the two-notch gap between the foreign-currency and local-currency ceilings reflects “transfer and convertibility risks given persistently large foreign currency financing needs and risks of capital flight.”