Moody’s reasons for holding Egypt’s credit rating unchanged

CAIRO – 20 August 2017: Egypt’s credit rating outlook maintained stable by global credit rating agency Moody's Investors Service late Friday, with long-term issuer and senior unsecured bond ratings left at B3.

The B3 credit rating has been reversing expectations of economic analysts. Moody’s justified its action with the following reasons:

1. Weak finances of government will remain influencing Egypt’s credit profile until the sustainability and impact of Egypt’s economic and structural reform is clear.

2. Fiscal deficits will keep growing in nominal terms over the coming years till it gradually declines

3. The level of external debt and foreign-currency denominated debt rose on influx of debt-financing tools

4. Egypt’s reform strategy might face headwinds as the presidential election is set to take place in May 2018

5. The debt percentage to GDP, which surpassed 100 percent in the previous fiscal year, is recording a high level, even though it is expected to fall to near 90 percent by 2019

In the report, Moody’s expected the government budget deficit to decline to around 10 percent in the current fiscal year, compared to preliminary estimates of 11 percent of deficit in FY2016/17.

Faster fiscal consolidation and improvement in debt metrics would push Moody’s towards a positive rating action.

Moody’s said it would also consider upgrading the rating if the international reserves depended less on deposits in Egyptian banks' branches abroad, and decrease reliance on concessional financing and external debt to rely more on foreign direct investment and exports as main sources of foreign exchange inflows.