Fitch Ratings says Egypt progressing in external re balancing

CAIRO – 2 March 2017: Egypt's recent increase in foreign exchange reserves, along with private capital inflows and the Egyptian pound’s appreciation against the dollar, will further progress in its gradual external rebalancing in early 2017, Fitch Ratings said in a Wednesday report.


By end-January Egypt’s foreign reserves continued to rally and hit $24 billion, marking around a $10 billion rise above its level last July.


"The rebound in FX reserves has been slightly stronger than anticipated, partly due to a larger-than-expected $4bn international bond issue in January," Fitch ratings said in the report, of which Egypt Today obtained a copy.


Since November Egypt has started to implement an ambitious economic reform program with the aim of boosting its ailing economy, hit by instability and declining tourism. The authorities floated the local currency, applied a Value Added Tax (VAT) and reviewed fuel prices.


These reforms enabled Cairo to sign a deal with the International l Monetary Fund (IMF) to receive $12 billion to support its economic reform program over three years.


"Further fiscal consolidation alongside external rebalancing would lay the groundwork for a broader-based improvement in sovereign credit metrics in 2018," said Fitch Ratings.

Meanwhile, the rating agency hinted at some persistent challenges, including the risk of social disorder. "Even if the envisaged reforms progress smoothly, it would take several years to reduce gross general government debt to more sustainable levels," it added.


Also, the Egyptian pound has strengthened 20 percent against the U.S. dollar since late December, offsetting some of its plunge since November’s flotation, according to Fitch.


"A return of foreign inflows into Egyptian treasuries prompted a partial retracement of government debt yields, with 91-day T-bill yields down by around 200 basis points (bp) in the month to mid-February," Fitch continued.


The rating agency attributed these major positive developments mainly to multilateral and bilateral institutions, particularly the IMF and World Bank, and a resumption of foreign portfolio inflows and remittances after the pound’s flotation.


In December, Fitch ratings affirmed Egypt's 'B/Stable' sovereign rating in the wake of the flotation and IMF board’s approval of the $12 billion extended fund facility, of which Egypt received a first tranche of $2.7 billion.