This will be Egypt’s 6th consecutive B+ rating from the ratings agency, with the streak starting back in 2018
Fitch Ratings maintained Egypt’s B+ rating in its latest report, supported by the government’s reforms, yet restrained by large fiscal deficits and high general government debt/GDP, among other considerations.
Egypt’s real growth saw an incline of 9.8% year-on-year in Q3 of 2021, driven both by exports and domestic demand, it explained in a statement today. Fitch predicts a 6% growth in the 2022 fiscal year (FY), and 4.5% in FY2023, but notes that tighter monetary conditions may pose significant risks.
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This will be Egypt’s 6th consecutive B+ rating from the ratings agency, with the streak starting back in 2019.
Egypt’s rating is sustained by its fiscal and economic reforms, as well as its large economy with robust growth and strong support from bilateral and multilateral partners.
However, Fitch Ratings noted that the ratings continue to be constrained due to by weak external liquidity metrics amid still substantial reliance on non-resident investments in the local bond market, large fiscal deficits, and high general government debt/GDP.
The agency pointed out that GCC support, and an expected IMF program, will support investor confident to boost investment in the country.
Tax revenue to GDP expectations fell to 12.8% from 13.2% for the current fiscal year (2021/2022), with Fitch noting amendments to the VAT law passed this year will expand the tax base to include e-commerce activities.
Fitch’s forecast for government debt to GDP ratio inched downward by 1% to hit 91% in the current FY, compared to 92% in the previous FY, and is expected to continue “a slight downward trend, despite the impact of currency devaluation”.
“[M]ore than half of government external debt is owed to multilateral institutions, with which Egypt has good relations, and the large domestic banking sector is a captive investor in local-currency debt,” the agency noted.
In regards to rising inflation rates, Fitch noted that previous subsidy reforms have been resilient in supporting the country.
“In our view, the CBE is likely to raise interest rates further to maintain positive real policy rates, tame inflation, and support the Egyptian pound and attractiveness of local-currency assets. We assume a further 300bp in rate rise by FYE23/24,” it stated.
