Moody’s downward revision for Egypt ignores gov’t efforts: Finance minister

Ahram Online , Friday 19 Jan 2024

Egypt’s Ministry of Finance Mohamed Maait stressed that the latest decision of global rating agency Moody's that fixed the country’s sovereign’s credit rating at Caa1 and revised its future outlook to negative “did not take into account the government’s current efforts.”

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On Thursday, Moody's revised its outlook on Egypt to "negative" from "stable" citing “increasing risks that the country's credit profile will continue to weaken amid difficult macroeconomic and exchange rate rebalancing.”

In a statement on Friday, Maait said the country’s government has adopted a “flexible and balanced” manner to manage macroeconomic risks, absorb successive external shocks, and deal with the negative effects resulting from geopolitical tensions affecting economic activity.

The government is also keen to meet the basic needs of citizens and expand social protection networks while adhering to financial discipline, he added.

This approach, he explained, allowed the government to record an initial surplus of EGP 150 billion (about $4.8 billion) during the first half of the current fiscal year 2023/2024 (from July to last December), compared to EGP 25 billion for the same period last fiscal year.

The finance minister spotlighted the nation’s ability – under its Initial Public Offering (IPO) programme – to meet its financing needs over the coming two years, attract more investment and therefore reduce the need for external financing.

The government has already withdrawn from economic activities worth $3.5 billion under the IPO scheme, the finance minister said, noting that the government can access about $5 billion in financing on concessional terms from multilateral development banks.

“This reflects the confidence of these international institutions in the economic path pursued by the Egyptian government through financial policies more capable of achieving financial discipline and maintaining a sustainable primary surplus, along with continuing to implement structural reforms that enhance economic growth by making more room for the private sector,” Maait was quoted as saying.

Maait said the government has already identified sources to meet the external financing requirements of the state's general budget until the end of the current fiscal year, which is estimated to be $4 billion.

Egypt is also pressing ahead with efforts to diversify its presence in the international market, he added, referring to the issuance of the Panda and Samurai bonds.

In November, Egypt issued the second batch of Yen-denominated Samurai bonds with a value of ¥75 billion (about $500 million) in a five-year tenor and with a regular dividend of 1.5 percent. 

In October, it also issued its first sustainable Panda bonds worth ¥3.5 billion ($500 million) with a yield of 3.5 percent over three years.

Amid the inflation and rising interest and exchange rates, Maait said, efforts are underway to put the debt-to-GDP ratios on a downward path.

Egypt has established a firm constraint on annual burdens to guarantee a downward trajectory for the debt-to-GDP ratio, aiming to achieve a level below 85 percent by the conclusion of June 2028, he added.

Additionally, it also seeks to extend the term of domestic debt from three years to four years, which would help alleviate the necessity for rapid financing, he noted.

The country has also a plan to swap debts for climate action, promote environmentally friendly investments, and issue new and diverse tools such as sukuk, green bonds, and sustainable development bonds, Maait pointed out.

Egypt is facing a severe foreign currency shortage that forced its central bank to instruct several local banks to suspend hard currency cash withdrawals and purchases made abroad using debit cards.

Egypt’s short-term external debt reached an all-time high at around $30.27 billion in the first quarter of the fiscal year (FY)2023/2024 – July/September – up from $28.15 billion in the previous quarter.

However, total external debt inched down to $164.52 billion in July-September from $164.73 billion in the previous quarter.

With a total external debt of nearly $164 billion, Egypt is required to pay $32.79 billion in debt service in 2024.

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