Moody's revision for Egypt’s outlook overlooks government’s efforts: Finance ministry

CAIRO – 19 January 2024: The Ministry of Finance has commented on Moody's Investors Service’s decision to maintain Egypt's sovereign credit rating at "Caa1" with a revised negative outlook, saying it “overlooks the government’s current efforts.”

In a statement on Friday, the ministry stated that the government’s Initial Public Offering (IPO) program strengthens Egypt's ability to meet its financing needs over the next two years and attract more investment inflows, reducing the need for external financing.

The statement highlighted the success of the state in withdrawing from several economic activities at a value of $3.5 billion within the program, which helps increase foreign currency inflows to cover the Egyptian economy's needs.

Moreover, the ministry indicated the possibility of obtaining around $5 billion annually under favorable conditions from multi-lateral development banks.

This reflects the confidence of these international institutions in the Egyptian government's economic trajectory, characterized by financial policies capable of achieving fiscal discipline and maintaining a sustainable primary surplus, the ministry added.

The ministry also shed light on structural reforms being implemented by the state to enhance economic growth by providing greater space for the private sector as the driving force of comprehensive development.

The statement clarified that the government has identified sources to meet the external financing needs of the general state budget until the end of the current fiscal year, estimated at $4 billion, while targeting continued diversification of international markets.

Credit profile concerns

Moody's said it has revised Egypt's outlook from "stable" to "negative" due to growing concerns about the country's credit profile but kept its credit rating unchanged at “Caa1.”

The agency points to the challenging macroeconomic environment and the exchange rate rebalancing as factors contributing to the weakening credit profile.

Despite financial support the Egypt has received from the International Monetary Fund (IMF), Moody's warns that policy actions and external assistance may not be sufficient to prevent a debt restructuring, given the country's weak debt metrics.

The agency highlights the significant increase in interest payments and external pressure, which have complicated the macroeconomic adjustment process.

However, Moody's acknowledges Egypt's track record of implementing fiscal reforms, which may contribute to paving the way for further financial support from the IMF.