The rating agency cited several factors driving this positive outlook.
Fitch Ratings has upgraded Egypt's long-term foreign-currency (LTFC) Issuer Default Rating (IDR) outlook from Stable to Positive, while maintaining the IDR at 'B-'. This shift highlights Egypt's bolstered economic resilience and decreased external vulnerabilities.
The rating agency cited several factors driving this positive outlook. Firstly, Egypt has significantly mitigated near-term external financing risks through initiatives such as the Ras El-Hekma deal with the United Arab Emirates (UAE), the implementation of a flexible exchange rate, and stricter monetary policies. These measures have facilitated additional financing from international financial institutions (IFI) and stimulated renewed inflows of non-resident capital into the domestic debt market.
Moreover, the Ras El-Hekma deal, valued at $35 billion, has spurred a surge in Foreign Direct Investment (FDI), injecting fresh foreign currency inflows into Egypt, with substantial funds directed towards the Ministry of Finance. Additionally, a portion of existing UAE foreign currency deposits has been converted into local currency deposits, easing Egypt's external debt obligations.
Fitch noted a significant influx of foreign capital into Egypt, including a $5 billion augmentation to the IMF Extended Fund Facility (EFF) and approval of a three-year EU support package. Non-resident holdings of domestic debt have also risen notably, contributing to a reduction in the net foreign liability position of both the Central Bank of Egypt (CBE) and banks.
Furthermore, Fitch projects a substantial increase in gross FX reserves, expected to reach $49.7 billion by the end of fiscal year 2024, supported by recovering remittances and a narrowing current account deficit.
The agency emphasized Egypt's adoption of exchange rate flexibility under the IMF EFF, which has bolstered external finances. Initial measures to contain off-budget spending further mitigate risks to public debt sustainability.
