Fitch Ratings announced a downgrade in Egypt's Long-Term Foreign-Currency Issuer Default Rating (IDR) from 'B' to 'B-' with a stable outlook. This decision was based on heightened risks associated with external financing, macroeconomic stability, and the country's substantial government debt.
Fitch highlighted the contradiction between the stability of Egypt's official exchange rate and the Central Bank of Egypt's intended commitment to a more adaptable exchange rate system. The agency also underscored the anticipated increase in Egypt's external debt maturities and the projected expansion of the current account deficit.
The agency emphasized that Egypt's growing dependence on foreign direct investment (FDI) and the persisting concerns about the trajectory of its debt were additional factors contributing to the downgrade. Moreover, the potential security risks stemming from regional conflicts and the ongoing issue of high inflation were cited as other crucial reasons for the rating adjustment.
Fitch attributed the rating downgrade to the sluggish pace of reforms, particularly the delays in transitioning to a more flexible exchange rate regime and in completing IMF program reviews. These delays were said to have undermined the credibility of Egypt's exchange rate policy and worsened the external financing constraints, given the mounting external government debt repayments.
Regarding the stable outlook, Fitch expressed its expectation that reforms, including privatization, a deceleration of large-scale projects, and an adjustment in the exchange rate, would gain momentum following the presidential elections scheduled for December. This acceleration is anticipated to pave the way for a potential larger IMF program and additional support from the Gulf Cooperation Council (GCC).
