CAIRO - 18 October 2024: S&P Global Ratings affirmed its 'B-/B' long- and short-term foreign and local currency sovereign credit ratings on Egypt, with a positive outlook.
The Rating Agency noted that the positive outlook reflects the potential for further improvements in Egypt's external and fiscal positions, adding that it also reflects our view that the new exchange rate regime, driven by market forces, will help drive GDP growth and, over time, support fiscal consolidation.
According to the Agency, the positive outlook reflects the significant steps the Egyptian authorities have taken over the last eight months to address Egypt's macroeconomic imbalances.
“The exchange-rate liberalization in March, alongside large FDI and donor inflows, has ensured the foreign-exchange market is now driven mostly by supply and demand,” it added.
Moreover, it said that the authorities' stated commitment to maintaining a market-determined exchange rate, alongside the policy anchor of the expanded IMF program and other donor and FDI funding, should support Egypt's growth prospects, fiscal revenues, and ability to adjust to external shocks. “Over time, these factors should help begin to reduce inflation and interest costs of government debt.”
S&P Global Ratings stated that a significant increase in foreign direct investment (FDI), a generous donor program, and portfolio and remittance inflows are supporting external liquidity and fiscal accounts, although some of the FDI transactions are one-off and not recurrent.
“A tight monetary policy since March and high interest rates have led the government to spend around 70 percent of revenues on interest payments,” it noted.
Meanwhile, it noted that It will be challenging for the authorities to maintain large primary budgetary surpluses in line with the IMF targets; moreover, current regional geopolitical risks are considerable, and have implications for key sectors including tourism, gas, and Suez Canal receipts.
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