Following consecutive downgrades of Egypt’s credit rating by international ratings agencies, an upward trend has been witnessed since September 2014.
Fitch
On 20 June, Fitch Rating Agency confirmed its outlook on Egypt with a “B”, and a stable outlook on long-term foreign and local currency Issuer Default Ratings (IDR). Fitch expects a reduction in the country’s budget deficit, derived from stronger growth and the decrease in commodity prices. The deficit will however remain big, according to the agency.
Fitch sees an improved, more politically stable environment under President Abdel Fattah Al-Sisi, which reflects on an improved economic situation. The agency, however, did not overlook the fact that “significant sections of the population are disaffected”, namely in North Sinai.
In December 2014, Fitch upgraded Egypt’s rating to B from B-, with a stable outlook. In response, Minister of Finance Hany Kadry Dimian said it was the first time Fitch had lifted Egypt’s rating, following a series of low ratings over the past few years.
Meanwhile, prior to March’s Economic Summit, Fitch Director Paul Gamble told Daily News Egypt that Egypt is slowly reclaiming credit ratings it has lost over the years of political uncertainty and unrest. This is as the economy gradually responds to extensive revival attempts.
Standard and Poor’s
In May, international ratings agency Standard and Poor’s affirmed Egypt’s long and short-term foreign and local currency sovereign credit ratings at B-/B, putting the country’s outlook at “positive” instead of “stable”.
S&P said they could revise the outlook to stable if they think recently improved political stability is threatened by political strife that could hamper the economic recovery. Nonetheless, S&P revealed that its ratings on Egypt remain restrained by “wide fiscal deficits, high domestic debt, low income levels, and institutional and social fragility”.
Moody’s
On 15 July, Moody’s Investors Service changed the outlook for Egypt’s banking system from negative to stable. The upgrade confirmed Moody’s expectations that bank funding and liquidity will “remain strong”, whilst improving operating conditions over the next 12-18 months. In May, Moody’s provided a B3 counterparty risk assessment to the National Bank of Egypt (NBE), Banque du Caire and Banque Misr.
The first positive achievement for Egypt after Moody’s decreased the Egyptian credit five times in succession following the 25 January Revolution came in April, when it raised the country’s credit rating to B3. Moody’s also estimated a decrease in Egypt’s budget deficit to 10% of GDP, and a decrease in public debt to less than 90% of GDP in FY 2014/2015.
In October 2014, Moody’s changed Egypt’s outlook from negative to stable, attributing the upgrade to the stabilised political and security situation. The agency said “the launch of government initiatives toward fiscal consolidation, signs of a growth recovery and an improvement in macroeconomic stability, and strong support from external donors” also attributed to this improvement.
The high fiscal deficits and government debt, as well as the “very large” fiscal borrowing needs, led Moody’s to confirm the government bonding rating at Caa1, however.
“The affirmation of the Caa1 rating reflects the very weak and challenging state of Egypt’s government finances. Budget deficits remain wide, at more than 10% of GDP,” Moody’s said. “Government expenditure is marked by a very high share of recurrent spending, which limits room for public investment.”
Source: Daily News Egypt
