However, Egypt’s rating was weighed down by its “still-large fiscal deficits, high government debt-to-GDP and domestic and regional security and political risks.”
Egypt was able to maintain its long-term foreign-currency issuer default rating (IDR) of ‘B+’ with a stable outlook from international ratings agency, Fitch Solutions, due to its “recent track record of fiscal and economic reforms,” coupled with its large economy.
According to Fitch, the Egyptian economy demonstrated stability and resilience throughout the pandemic, as “continued economic growth and a modest coronavirus support package limit the pandemic’s impact on Egypt’s public finances.”
However, Egypt’s rating was weighed down by its “still-large fiscal deficits, high government debt-to-GDP and domestic and regional security and political risks.”
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The government’s support packages to offset the pandemic’s effects limited its impact on public finances, the agency explained.
With Egypt’s tax revenues climbing due to several state initiatives, including the new customs law and the modernization of the tax system in general through the new digital tax platform, Fitch forecasts that the overall deficit will narrow in fiscal year (FY) 2021/2022.
The deficit is expected to have widened to 7.5% of GDP during the previous fiscal year from 7.0% in FY 2019-2020 and 7.9% in FY 2018-2019.
Fitch forecast economic growth of 5.5% in FY2021/2022 and FY2022/2023, upholding its August statement, supported by global economic recovery and the return of tourism to Egypt, with a highlight on Russia’s ending of its 6-year flight ban on flights to the Red Sea.
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Egypt’s GDP “outperformed the vast majority of Fitch-rated sovereigns throughout the coronavirus pandemic,” on the back of domestic demand, natural gas production and new public-sector investment amid declining tourism and export revenues, Fitch said.
Fitch noted that Egypt’s real GDP grew 3.3% in FY2021, down from 3.6% in FY2020 and 5.6% in FY2019.
Public finances and government debt levels continued to be a “core weakness” within the rating, with Fitch expecting government debt/GDP to maintain its retreat from FY2022, but also expect debt-to-GDP to begin to fall during the current fiscal year. Debt rose from 84% of GDP in FY 2018-2019 to an estimated 88% in FY 2019-2020 and FY 2020-2021, but is expected to fall back to 86% by the end of this year in June 2022 due to accelerating growth and continued primary surpluses.
