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IMF loan not enough to lift Egyptian economy, says Fitch Ratings

The rating agency says an IMF facility would only be sufficient if it catalyses additional international support for the country's economy

Ahram Online, Tuesday 17 Jan 2012
Fitch
(Photo: Reuters)
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International credit rating agency, Fitch Rating said that Egypt's request for a $3.2bn IMF standby facility is encouraging but will not be sufficient to have a meaningful impact on the country's finances on its own.

An IMF facility will be of real value to Egypt if it catalysed additional international support, the rating agency said in a statement on Tuesday.

"If granted, the facility's most positive impact would be to reassure international investors that Egypt is implementing clear and sustainable fiscal and economic policies," Fitch's statement read.

An IMF delegation arrived to Egypt on Sunday night to negotiate the terms of a possible $3.2 facility from the IMF to Egypt to support its public finances.

Fitch Ratings, which in December downgraded Egypt's long-term foreign currency Issuer Default Rating (IDR) to 'BB-' from 'BB' and its long-term local currency IDR to 'BB' from 'BB+', said the IMF facility could "stabilise - or even ease - borrowing costs until the transfer of power from the military council, due in June."

The rating agency had said its downgrade for Egypt mirrored the substantial and continuous erosion of Egypt's international reserves in 2011, which accelerated in October/November. Fitch had also indicated that the ongoing political turbulence is delaying economic recovery and has contributed to worsened debt dynamics.

Egypt's military rulers had turned down a similar facility from the IMF last June on basis of not wanting to raise Egypt's external debt and its preference to rely on domestic funding to finance the budget deficit.

A foreign facility, however, became necessary as the rate of depletion of Egypt's foreign currency reserves continued to surge; ending 2011 with 50 per cent of reserves wiped off.

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