Fitch Ratings projects Egypt’s external financing needs for FY 2022/23 to hit $19B

Updated 1/19/2023 8:48:00 AM

ArabFinance: Fitch Ratings said that Egypt’s external financing needs for the current fiscal year (FY) 2022/2023 and the next FY 2023/2024 could reach at least $19 billion and $22.5 billion, respectively, according to a research note on January 18th.

"This excludes bilateral debt obligations of around $8 billion in 2023 and $6 billion in 2024, such as deposits from Gulf sovereigns, which we view as likely to be rolled over," it said.

The credit rating agency also praised the $3 billion loan that Egypt secured from the International Monetary Fund (IMF) and hailed the state’s orientation towards more flexible exchange rate regime.

"The EGP’s depreciation since the start of the year provides evidence of the authorities’ emerging commitment to exchange-rate flexibility, which, if sustained, should have a positive influence on the sovereign’s credit profile in the longer term," the research note reads.

"In 2016 depreciation helped to boost fiscal revenues while eroding spending in real terms. Our baseline assumption is that a similar dynamic will play out in 2023, but less fiscally beneficial outcomes are possible," it added.

Fitch also expressed worry as the Egyptian economy may be disrupted more by high rates and inflation than the agency expected, or that social instability may increase, prompting the authorities to ease fiscal and economic reforms.

On January 17th, Fitch Ratings said in a research note that Egyptian banks can have their capital ratios withstand further currency devaluation due to "healthy" internal capital generation.

It is noteworthy noting that Fitch ratings in November 2022 affirmed Egypt’s long-term foreign-currency (LTFC) Issuer Default Rating (IDR) at B+, citing the country’s large economy, robust growth and "strong international support," including deposits from Gulf countries.

However, it has downgraded its outlook for Egypt to negative from stable, citing the country’s weaker external liquidity and reduced prospects for access to bond markets.