CAIRO - 28 April 2024: Escalating regional conflict would present risks to tourism and Suez Canal receipts in Egypt, weighing further on the current account deficit, Fitch Ratings stated.
Fitch noted that the direct exchange of strikes between Iran and Israel has raised the risks of an escalation of regional conflict beyond Gaza.
“However, Egypt’s recent Ras al-Hikma deal and greater exchange-rate flexibility, which have unlocked additional financing from international financial institutions and non-resident inflows into its domestic debt market, have markedly reduced near-term external financing risks, and vulnerability to geopolitical events,” the rating agency added.
In February, Egypt signed a deal with the Abu Dhabi Developmental Holding Company PJSC (ADQ) - the sovereign wealth fund of the Emirate of Abu Dhabi - to develop the Ras El-Hikma city, with total investments of $35 billion.
The government expects the project to attract investments of up to $150 billion during its development, helping to provide millions of job opportunities and inject liquidity into the Egyptian economy.
Under the deal, Cairo receives $35 billion, including an $11 billion Emirati deposit in the Egyptian Central Bank, in addition to $24 billion to be injected by the United Arab Emirates. Egypt will receive 35 percent of the profits from the Ras El-Hikma project, and the state will be committed to cash and in-kind compensation for the residents located on the city's lands.
In November, Fitch Ratings downgraded Egypt's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B-' from 'B', with a stable outlook. This rating is attributed to increased risks to external financing, macroeconomic stability, and high government debt.
The stability of the official exchange rate contrasts with the Central Bank of Egypt's commitment to a flexible exchange rate, according to Fitch, adding that Egypt's external debt maturities are set to rise, and the current account deficit is expected to expand.
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