When can Standard & Poor's raise or lower Egypt's credit rating again?

CAIRO – 22 October 2023: Standard & Poor's credit rating agency revealed two scenarios that, if they occur, would lead to the upgrade or downgrade of Egypt's credit rating in the upcoming period, according to a report published on its website.

 

This comes after Standard & Poor's credit rating agency announced earlier in October, the downgrading of Egypt's sovereign debt rating in the local currency and long-term foreign currencies from a "B" grade to "-B" with a stable outlook.

 

The Positive Scenario
 

The agency stated that it could raise its ratings for Egypt if the country reduces its levels of net government debt and total external financing needs through accelerating reforms that support competitiveness, growth, and financial outcomes. It added that under this scenario, it expects renewed financial support, whether bilateral or multilateral, from external parties.

 

Egypt has been collaborating with the International Monetary Fund (IMF) in implementing an economic reform program since last December, which is supported by funding of up to $3 billion disbursed in tranches. Egypt is awaiting the IMF's first and second reviews of the reform program in order to disburse two tranches of the loan totaling about $700 million.

 

The IMF postponed its reviews of the reform program amid demands for Egyptian authorities to swiftly return to commitment to exchange rate flexibility, after maintaining the exchange rate unchanged since last March following a sharp decline in the previous year. These calls from the IMF come in tandem with the progress achieved by the government in the file of selling some state assets.

 

Egypt's funding gap during the current fiscal year amounts to between $6 and $8 billion, according to recent statements by Mohamed Maait, the Minister of Finance.

 

The Negative Scenario

 

Standard & Poor's stated that it could downgrade Egypt's ratings if the authorities fail to implement the necessary macroeconomic reforms to reduce economic imbalances in Egypt and unleash multilateral and bilateral financing.
 

It added that it could also downgrade ratings if government interest costs, "which are already high," increase, raising the risk of distressed debt exchange.

 

The Finance Minister anticipated that the IMF would announce before the end of October a date for conducting its reviews of the economic reform program.

 

The allocations for government debt interest payments in the state's general budget for the current fiscal year are estimated at around LE 1.1201 trillion, compared to preliminary estimates of LE 775.2 billion for the fiscal year 2022-2023.