Moody's upgrades Egypt's credit rating to B3

Waad Ahmed , Tuesday 7 Apr 2015

Workers from Egypt in the construction of a hotel (Photo: Reuters)

International credit ratings agency Moody's upgraded on Tuesday Egypt's credit rating to B3 from Caa1 with a stable outlook, a move that could pave the way for better rates in the anticipated government offering for Eurobonds.

The decision was based on improved macroeconomic performance with the expectation that growth will reach 4.5 percent for the current fiscal year and rise to 5-6 percent in the coming four years, the agency said. The credit agency also cited ongoing fiscal and economic reforms as well as continuing support from Gulf countries as being behind the upgrade.

“The rating is still speculative. It is good there has been an increase. It is a reflection of a much better economic policy but it would help Egypt to have an even better rating,” Angus Blair, chairman of business and economic forecasting think-tank Signet, told Ahram Online.

The decision is good news for Egypt's planned dollar-dominated Eurobond issue, the first since the 2011 revolution.

Finance Minister Hany Qadry said the anticipated launch of up to $2 billion in dollar-dominated Eurobonds will take place before the end of June in different maturities, with possible combinations of 3, 5 and 7 years, but would expect them to be less than 10 years, Reuters reported in February.

Egypt’s government has been undertaking fiscal and regulatory reforms to improve the macroeconomic standing and business environment since President Abdel Fattah El-Sisi took office last year.

The government also introduced capital gains taxes and plans a new value added tax which Moody’s believes could further cut Egypt’s budget deficit, targeted to hit 11 percent in FY 2014/15.

This included taking the politically sensitive decision of cutting energy subsidies, raising pump prices by up to 78 percent with more cuts expected in the next fiscal year.

Egypt’s GDP grew 5.6 percent in the first half of the current fiscal year.

Egypt is expecting to see a flow of investments following an economic conference held last month, during which deals worth $38 billion were signed.

Additionally, Saudi Arabia, United Arab Emirates, Kuwait and Oman collectively pledged $12.5 billion in aid to Egypt, as a sign of continuing support to the country.

“If further signs of economic growth and other economic improvements it is possible that the rating might be improved, so it is one step at the right direction,” Blair said.

However, Moody’s noted that the credit rating remains "constrained by the weak level of government finances, marked by still sizeable deficits and elevated debt levels."

The credit rating will improve if Egypt narrows its deficit and debt levels while improving foreign exchange independently from external donor support, the ratings agency added in its statement.

This is the third upgrade for Egypt in recent months; ratings agencies Standard and Poor's and Fitch upgraded their ratings for the country at the end of 2014.

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