Fitch affirms Egypt’s ‘B’ rating with stable outlook
Updated 4/13/2025 8:21:00 AM
Arab Finance: Fitch Ratings has affirmed Egypt’s Long-Term Foreign-Currency Issuer Default Rating at ‘B’ with a Stable Outlook, reflecting a combination of macroeconomic stabilization, improved external buffers, and continued policy support despite ongoing structural and fiscal challenges, as per a statement.
The agency cited Egypt’s relatively large economy, robust potential growth, and strong support from multilateral and Gulf partners as key strengths.
Persistent weaknesses offset these, including high debt interest-to-revenue ratios, substantial external financing needs, elevated inflation, and geopolitical risks.
Fitch expects Egypt’s external position to remain broadly stable. The current account deficit is projected to widen slightly to 5.6% of GDP in fiscal year (FY) 2024/2025 before narrowing to 4.0% in FY 2025/2026, aided by resumed energy sector investment and lower gas import costs.
Foreign direct investment is forecast to reach $15 billion in FY 2025/2026, largely driven by Gulf-backed real estate projects. Official reserves are projected to cover 4.2 months of current external payments by the end of FY 2025/2026, aligning with the ‘B’ median.
The government deficit is expected to widen to 7.4% of GDP in FY 2024/2025, reflecting the non-recurrence of Ras El-Hekma revenues and persistently high interest costs, despite improved tax collection.
An additional 1% of GDP in revenue measures is planned for FY 2025/2026, mainly through VAT adjustments, potentially narrowing the deficit to 7.2%.
While efforts to rein in off-budget spending are underway, Fitch expressed concerns over contingent liabilities and the lack of transparency across Egypt’s broader public sector.
General government debt is forecast to decline from 89.4% of GDP in FY2024 to 80.4% in FY 2025/2026, though this remains well above the 'B' peer median.
Fitch expects inflation to rise again to 14% by the end of FY 2024/2025 due to fuel subsidy reductions, before easing to 10.5% in FY 2025/2026 amid currency stability and improved expectations.
Fitch forecasts that debt interest payments, currently among the highest globally, will decline sharply by FY 2028/2029 as the Central Bank reduces rates from the current 27.25% to levels supporting a real rate of around 4%.
Debt interest-to-revenue is projected to fall from a peak of nearly 61% to 38% by FY 2028/2029.
Real GDP growth is expected to accelerate to 4.0% in FY 2024/ 2025 and 4.7% in FY 2025/2026, driven by stronger real income and confidence, although structural reforms to boost competitiveness remain limited.
Progress has been made in tax reforms and customs procedures, but state asset sales have been modest.
Fitch also noted the resilience of Egypt’s banking sector, which remains well-capitalized and liquid.
Related News
