Moody’s has affirmed on Monday Egypt’s long-term foreign and local currency issuer ratings at B2, with an outlook still stable.
The rating agency has also affirmed Egypt’s foreign currency senior unsecured ratings at B2, and its foreign currency senior unsecured MTN programme rating at (P)B2.
“The affirmation of the B2 rating and stable outlook reflect Egypt’s ongoing credit strengths and challenges that Moody’s does not expect to change materially relative to similarly-rated sovereigns through the global shock posed by the coronavirus pandemic.” the rating agency said in a statement.
While the coronavirus shock exposes Egypt’s credit vulnerabilities, Moody’s said the improvements in governance and policy effectiveness in recent years shore up the sovereign’s credit profile resilience to the current shock.
“The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions, and markets. The combined credit effects of these developments are unprecedented. For Egypt, the shock propagates through pressure on external financing requirements, diminished tourism receipts and remittances and slower growth.”
Moody’s further said Egypt’s government’s large funding requirements and weak debt affordability driven by a high interest bill expose it to a sharp tightening in financing conditions triggered by the coronavirus. However, at this stage, the rating agency assesses that a track record of economic and fiscal reform implementation and demonstrated capacity to manage significant shocks reduce the likelihood of global financial market disruption severely affecting Egypt.
“In particular, a broad domestic funding base and robust foreign exchange reserves in excess of maturing liabilities provide buffers against significant capital outflows from emerging markets in the wake of the coronavirus pandemic.”
Overall, Moody’s said it expects the economic and financial shock to delay, but not derail the gradual decline in the government’s debt burden, while its liquidity and external positions will likely remain broadly unchanged.
“Egypt’s country ceilings remain unchanged with the foreign-currency bond ceiling at B1, the foreign-currency deposit ceiling at B3, and the local-currency bond and deposit ceilings at Ba1. The short-term country ceilings for foreign-currency bonds and deposits remain unchanged at Not Prime (NP).”
The stable outlook reflects Moody’s view that Egypt’s credit profile will be resilient to the current shock while exposure will remain significant, the rating agency added.
“The government’s restoration of primary surpluses and renewed build-up of domestic and external liquidity buffers supported by a large domestic funding based should help weather periods of capital outflows, wider risk premia and/or pressure on the exchange rate.”
“Over time, a lengthening track record of limited credit impact of such shocks could point to stronger governance and more effective policymaking institutions than Moody’s currently assesses.”
“However, nearer term, given weak starting points on debt affordability and outstanding liquidity and external exposure, a renewed and prolonged shift in global investors’ risk appetite reflecting broad-based risk-off sentiment for emerging markets and/or an idiosyncratic change related to Egypt’s growth prospects and policy credibility could materially test the resilience of Egypt’s credit profile.”
