Moody’s keeps Egypt's Caa1 long-term currency issuer ratings amid fiscal and external rebalancing success

Cairo – February 20, 2025: Moody's has reaffirmed Egypt's Caa1 long-term foreign and local currency issuer ratings, while keeping a positive outlook in place.

This outlook, which has been active since March 2024, underscores the country's potential for progress in reducing its debt service burden and improving its external financial position.

Additionally, Egypt's foreign-currency senior unsecured ratings at Caa1 and its foreign-currency senior unsecured MTN program rating at (P)Caa1 have been affirmed.

Moody’s noted that Egypt has made significant strides in fiscal and external rebalancing, emphasizing the strengthening of its foreign exchange buffers following the currency devaluation and flotation.

The report highlighted that “borrowing costs have begun to decline,” signaling a more favorable environment for debt management. The growing “monetary policy credibility and effectiveness” is expected to allow for further reductions in policy rates, which will ease debt servicing costs.

The central bank’s consistent approach, including maintaining a policy stance consistent with inflation targeting and a floating exchange rate regime, is expected to continue supporting economic stabilization. Moody’s anticipates that these policies will help bring down inflation and borrowing costs further.

Efforts toward fiscal consolidation are also progressing, with the government aiming to achieve primary surpluses of 3.5 percent of GDP starting in 2025.

However, despite these positive steps, challenges persist, as Egypt’s high debt ratio, weak debt affordability compared to peers, and substantial financing needs continue to weigh on its credit profile. The report noted that Egypt remains vulnerable to external shocks that could undermine its commitment to a floating exchange rate and exacerbate external imbalances.

The positive outlook also reflects “prospects of an improvement in Egypt's external position,” driven by “significant foreign direct investment inflows and future project development commitments,” which have bolstered capital inflows and strengthened the country’s foreign exchange buffers.

As of January 2025, Egypt’s liquid foreign exchange reserves were projected to reach $36 billion (4.6 months of imports), a positive indicator of the economy's stabilization.

Moody’s also expects Egypt to benefit from a “future recovery in Suez Canal receipts,” which will further contribute to expanding the country’s revenue base.

The government’s ongoing fiscal measures, including subsidy reforms and the expansion of the Takaful and Karama cash transfer program, which supports 20 percent of the population as of 2024, are also expected to strengthen Egypt’s fiscal position.

In addition, tax reforms, including the removal of VAT exemptions for public entities, are expected to help the government achieve its fiscal goals, including maintaining primary surpluses of 3.5 percent of GDP starting in 2025.

While the positive outlook reflects Egypt's progress, there are risks to the country’s credit stability. A downgrade could occur if capital outflows increase or foreign currency inflows diminish, potentially undermining the country's external position. A shift away from the floating exchange rate policy or further deterioration in debt affordability could also negatively impact Egypt’s rating.

Moody’s also projects gradual improvements in Egypt’s debt burden and affordability.

The interest-to-revenue ratio is expected to decline to below 50 percent by fiscal 2027, down from 63 percent in fiscal 2025, and the debt-to-GDP ratio is forecasted to fall below 80 percent by fiscal 2027, compared to 84 percent in fiscal 2025. However, these improvements are contingent on sustained economic reforms and fiscal discipline.