Fitch's downgrade is the result of unrelenting external pressures on Egypt's economy: Maait

Amr Kandil , Saturday 6 May 2023

Minister of Finance Mohamed Maait attributed Fitch Ratings' decision to downgrade Egypt's sovereign credit rating -- giving it a Negative Outlook --to the country's continuous struggle against the extreme external pressures resulting from complex global challenges.

A file photo of Egypt s finance minister Mohamed Maait

Fitch's downgrade of Egypt's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to “B” – down from “B+” – reflects the pressures under which the economies of all emerging countries, including Egypt, struggle to obtain external funds amid unfavourable global financial conditions, Maait added.

These challenges, he explained, include the war in Eastern Europe, the global inflation wave, the rise in interest rates, the cost of financing, as well as other restrictive policies adopted by central banks around the world, all of which resulted in capital flowing from emerging markets, including Egypt, toward those of developed states, the finance minister noted.

They have also created difficulties for emerging economies to access global markets and caused uncertainty among investors, Maait added.

Fitch Ratings cited high external financing requirements, constrained external financing conditions, and sensitivity of broader financing plan to investor sentiment as reasons for the downgrade and the Negative Outlook.

Fitch Ratings added that "all this comes against a background of high uncertainty on the exchange-rate trajectory, and reduced external liquidity buffers."

The agency also warned that "any delay in transitioning to a flexible exchange rate will further undermine confidence, and potentially delay the IMF programme.”

Egypt is currently engaged in an Extended Fund Facility (EFF) programme with the IMF that allows Egypt to receive a loan of $3 billion through FY2025/2026.

Under the programme, Egypt is committed to adopting a flexible exchange rate regime.

Fitch’s decision comes just two weeks after the American credit rating agency S&P Global Ratings revised their outlook on Egypt from stable to negative due to “risks that the policy measures implemented by the Egyptian authorities may be insufficient to stabilize the exchange rate and attract foreign currency inflows to meet the sovereign’s high external financing needs.” 

Maait stressed that Egypt is committed to maintaining financial discipline and achieving the financial objectives of the fiscal year 2022/2023 despite the tremendous foreign shocks.

Egypt aims to produce a primary surplus of 1.5 percent of gross domestic product (GDP), during the current fiscal year, and 2.5 percent in the coming fiscal years, he said.

The finance minister underlined Egypt’s endeavours to reduce the Debt-to-GDP ratio to less than 80 percent by the fiscal year 2026/2027.

Had it not been for the change in the exchange rate of the EGP against the dollar, Debt-to-GDP would have decreased this year to less than 80 percent, Maait added.


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