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IMF deal credit positive for Egypt, implementation risks remain high: Fitch

Fitch said it is currently giving Egypt a 'B' rating with a stable outlook

Ahram Online , Monday 1 Aug 2016
Fitch
File Photo: The Fitch Ratings building is seen in New York May 7, 2010 (Photo: Reuters)
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The International credit rating agency Fitch said on Monday that for Egypt securing an IMF funding deal would be credit positive for the country's economy, yet warned that risks in implementation are high and the country will continue to face several economic challenges.

On Saturday, an IMF delegation started its two-week visit to Egypt as the Egyptian government eyes a $12 billion loan package.

The programme, through which Egypt is seeking to secure $4 billion annually over three years, is aimed at easing the country's budget deficit, which edged up to between 11 and 13 percent over the past six years.

An agreement could be in place by September if discussions are finalised.

Fitch said it is currently giving Egypt a 'B' rating with a stable outlook.

"In our opinion, this could still fall short of Egypt's total financing needs, which we estimate could be closer to $10 billion annually, but a package would also likely stimulate some return of portfolio investment inflows," Fitch said in an official statement.

It added that the deal would also speed up fiscal reform and boost confidence in the economy, which is currently struggling with a budget deficit of close to 12 percent of the GDP, mediocre economic growth and double-digit inflation.

The agency said that while Egypt has been holding negotiations with the IMF since 2011, the possibility of reaching an agreement may be better this time around due to Egypt's completion of its 2013 political roadmap by electing a new parliament and the country's adoption of a programme on economic reforms.

It added that it expects that the Egyptian government would face some internal opposition to the deal as an IMF support would be seen as "politically contentious."

According to the US-based agency, the risks in the implementation of the IMF deal include rising inflation due to the adoption of provisions such as raising the dollar exchange rate, a VAT on goods and services and the restructuring of the civil service apparatus.

Last May, Egypt's cabinet approved a new value-added tax (VAT) bill, which is yet to be presented to parliament and is set at a flat rate of 10 percent.

Egypt has said that the IMF has not imposed any preconditions for the granting of the much-awaited loan, insisting that the government would reject any reform proposal that could add hardship on lower-income citizens.

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