Moody’s Ratings has upgraded Egypt’s long-term local- and foreign-currency issuer ratings to B3 from Caa1, maintaining a positive outlook as fiscal consolidation and structural reforms support an improving debt trajectory.

The agency also raised the government’s foreign-currency senior unsecured ratings to B3 from Caa1 and upgraded its foreign-currency senior unsecured medium-term note (MTN) program rating to (P)B3 from (P)Caa1.

Moody’s upgraded the foreign-currency-backed senior unsecured MTN program rating of the Egyptian Financial Company for Sovereign Taskeek, a government-owned special-purpose vehicle, to (P)B3 from (P)Caa1. The agency views the company’s issuances as ultimately obligations of the Egyptian government.

The upgrades reflect fiscal consolidation and structural reforms that have placed government debt and interest burdens on a declining path, although both remain elevated, Moody’s said.

Stronger revenue collection and spending restraint have supported the improvement, while the shift to a flexible exchange-rate regime and tighter monetary policy has strengthened external buffers and the economy’s capacity to absorb shocks.

The agency said Egypt’s ability to sustain these gains despite a challenging external environment and higher oil prices highlights the durability of the improvement and greater policy effectiveness.

The positive outlook reflects the possibility that sustained fiscal discipline and further reforms could reduce government debt and interest burdens faster than Moody’s baseline projections.

This could be supported by stronger economic growth, more effective revenue collection and a faster decline in domestic borrowing costs as inflation eases and investor confidence improves.

Moody’s also raised Egypt’s local-currency ceiling to Ba3 from B1 and its foreign-currency ceiling to B2 from B3.

The agency said the three-notch gap between the local-currency ceiling and the sovereign rating reflects Egypt’s large, diversified economy, alongside a substantial public-sector footprint that constrains private-sector development and credit allocation despite reforms aimed at creating a more level playing field.

The two-notch gap between the foreign- and local-currency ceilings reflects transfer and convertibility risks, given Egypt’s substantial foreign-currency financing needs relative to official reserves and the risk of capital flight.