Moody’s review on Egypt’s ratings extended for 3 months

Moody’s has extended its review of Egypt's B3 long-term foreign-currency and local-currency issuer ratings, it announced in a recent statement. They were originally put under review for a possible downgrade on May 9th.

According to the ratings agency, the ongoing review “balances progress on the government's privatization, fiscal, and structural reform agenda against evidence of a further weakening in external liquidity”.

Moody’s recognized the Egyptian government’s progress with its reforms while noting that there are indications of stress on Egypt's external financial health.

The review process continues to focus on several aspects, including the outcomes of recent asset sales aimed at boosting foreign currency reserves, the country's net foreign asset position, foreign direct investment (FDI) inflows, and the exchange rate.

Moody’s acknowledged improvements to Egypt’s current account, but underlined that foreign exchange shortages and possible trade shocks in the food and energy sectors will increase the probability of a new currency devaluation.  

The agency added that another devaluation of the Egyptian pound could lead to inflation, higher borrowing costs, and an increased government debt ratio which would be “more consistent with a lower rating level”.

While Moody’s highlighted Egypt’s asset sales worth $1.9 billion as part of the IMF program and financing strategy, it also pointed out that “external liquidity data for June 2023 show[ed] a renewed deterioration in the monetary system's (including commercial banks and the central bank) net foreign liability position to $27.1 billion from $24.5 billion in May”. The agency noted that this could impact Egypt’s ability to maintain enough foreign currency reserves to handle its financial commitments.

In an official statement, Minister of Finance Mohamed Maait responded to the extension by acknowledging the Egyptian economy’s challenges due to domestic and global factors. The minister underscored the government's dedication to implementing further reforms and structural changes to address these challenges.

The ministry’s official statement added that Moody’s based its recent decision on the structural reforms taken recently by the Egyptian government to stimulate investment and empower the private sector.

Extending the review on Egypt’s sovereign credit rating in both local and foreign currencies and the future outlook an additional 3 months will reflect a balanced view of the recent reform steps and measures taken during the past months, Maait explained.