Moody's affirms Egypt's B3 credit rating

Ahram Online , Saturday 19 Aug 2017

Moody's assesses Egypt's position as positive, but says challenges lie ahead

File photo of Moody's sign is displayed on 7 World Trade Center, the company's corporate headquarters in New York (Photo: AP)

The outlook on Egypt’s credit rating remains stable, global credit rating agency Moody's said late Friday, affirming the country’s “long-term issuer and senior unsecured bond ratings at B3.”

“The stable rating outlook reflects Moody's view that upside and downside risks to the rating are balanced. Reform progress has been impressive.” the US-based agency said in a statement.

Since 2014, Egypt's government has embarked on a fiscal reform programme through which energy subsidies will be phased out gradually and new taxes are being introduced to curb the growing state budget deficit. In addition, the currency was floated last November.

The credit rating agency said that ongoing structural reforms should improve the business environment and facilitate domestic and foreign direct investment.

“Moody's expects Egypt to continue to comply with the programme targets under the IMF Extended Fund Facility. Despite the sharp rise in inflation as result of the currency devaluation and fiscal reforms there were no large-scale protests, and the broadly stable security situation bodes well for the tourism sector,” it said.

Annual headline inflation in urban areas rose to 33 percent in July, up from 29.8 percent in June, according to official statistics agency CAPMAS.

On the potential of further improving Egypt’s credit rating, Moody's said that faster than currently expected progress under the reform programme would be credit positive, adding that “more rapid fiscal consolidation and improvements in debt metrics, while preserving social stability, would be a key driver for a potential positive rating action.”

However, the US-based rating agency has listed certain future challenges that would be faced by the country.

“While political stability has improved to some degree, reform momentum may face headwinds, including from the presidential election set to take place by May 2018.”

“Visibility on the extent to which the reform programme will materially improve the sovereign credit profile in the coming years remains limited,” the statement added.

In late July, Moody's said that the International Monetary Fund review of Egypt’s reforms, rated B3, is credit positive as it shows Egypt’s progress in implementing economic reforms.

In mid-August 2016, Egypt reached a staff-level agreement with the IMF over a three-year $12 billion loan to endorse the country’s fiscal reform programme, which the government embarked on in 2014 in an attempt to curb the growing state budget deficit.

In November 2016, Egypt received the first funding installment – an initial $2.75 billion – of the first tranche following the flotation of the Egyptian pound.

Egypt’s economy has struggled since the January 2011 uprising which toppled long-time autocrat Hosni Mubarak and resulted in years of political and security upheaval.

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