Moody’s, prominent global credit rating institution, has kept Egypt’s credit rating at B2 with a stable outlook.
In a report published on Wednesday through its Investors Service, Moody’s said that Egypt's B2 stable credit profile reflects its sizable and diversified economy, large domestic funding base, and projected foreign exchange reserves that are enough to cover maturing external liabilities over the next three years.
Relatively low levels of foreign currency-denominated and external government debt also support Egypt's credit profile, according to the report.
Declining inflation and credible monetary policies have also allowed the Central Bank of Egypt (CBE) to cut interest rates, which has contributed to the gradual decline in governmental domestic borrowing costs.
"This credit outlook reflects the resilience of Egypt's credit profile against financing shocks despite high exposure, a positive for its credit profile. This is driven by its effective and credible government policies. A lengthening track record of credible and effective fiscal, economic and debt management would also reflect positively on Egypt's credit profile,” said Elisa Parisi-Capone, vice-president and senior analyst at Moody's Investors Service.
The report highlighted Egypt's main credit weaknesses that include very large government financing need of 30 percent to 40 percent of GDP annually, with high rollover rates that expose Egypt's financing conditions to tightening domestic or external financing conditions.
Similarly, despite a stronger jobs market, securing jobs for new labour market entrants remains a long-term social challenge, as do water shortages. Regional security risks also compound these weaknesses, according to the report.
“A significant improvement in debt affordability and reduced gross financing needs would see the rating being upgraded. Evidence of sustained improvement in the labour market and in non-hydrocarbon exports would also be a positive change. On the other hand, a new bout of capital outflows which significantly erode the central bank's exchange reserves and threaten external stability would contribute towards a rating downgrade, as would a continued decline in debt affordability”, read the report.
Moody’s has kept Egypt’s credit rating at B2 with stable outlook since April 2020, which is a testimony to the resilience of the Egyptian economy, especially amid the COVID-19 crisis.