CAIRO - 3 May 2024: Fitch Ratings, a leading global credit rating agency, has revised Egypt's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) outlook from Stable to Positive, while affirming the IDR at 'B-'.
The move comes as a nod to Egypt's strengthened economic resilience and reduced external vulnerabilities.
The rating agency revealed the key drivers behind the positive outlook, which include: reduced external vulnerability as Egypt has seen a significant reduction in near-term external financing risks, attributed to the Ras El-Hikma deal with the United Arab Emirates (UAE), the adoption of a flexible exchange rate, and tighter monetary policies.
It noted that these measures have unlocked additional financing from international financial institutions (IFI) and led to a resurgence in non-resident inflows to the domestic debt market.
Fitch also referred to the surge in Foreign Direct Investment (FDI) resulting from the Ras El-Hikma deal, valued at $35 billion, which has injected fresh foreign currency inflows into Egypt, with substantial funds allocated to the Ministry of Finance. “Moreover, a portion of existing UAE foreign currency deposits has been converted to local currency deposits, easing Egypt's external debt burden,” the agency added.
According to Fitch, Egypt has witnessed a significant influx of foreign capital, with the IMF Extended Fund Facility (EFF) receiving a $ 5 billion augmentation and the approval of a three-year EU support package. Non-resident holdings of domestic debt have also surged, contributing to a notable reduction in the net foreign liability position of the Central Bank of Egypt (CBE) and banks.
Furthermore, Fitch forecasts a substantial increase in gross FX reserves, reaching USD49.7 billion by the end of fiscal year 2024. This rise, coupled with recovering remittances and a narrowing current account deficit, underscores Egypt's improved external financial position.
It added that Egypt's adoption of exchange rate flexibility, closely monitored under the IMF EFF, has been instrumental in bolstering external finances. Initial steps to contain off-budget spending further contribute to reducing public debt sustainability risks.
While the positive outlook reflects Egypt's economic progress, challenges remain, including high inflation, fiscal deficits, and geopolitical risks. However, Fitch's assessment suggests that Egypt's ongoing reforms and favorable external support position the country for continued economic resilience and growth.
The upgrade in outlook underscores Fitch's confidence in Egypt's economic trajectory and its potential to attract further investment, marking a significant vote of confidence in the country's economic reforms and stability.
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