S&P downgrades Egypt's credit rating to B-, changing outlook to stable

Ahram Online , Saturday 21 Oct 2023

S&P Global Ratings agency (previously Standard & Poor's) has downgraded Egypt's long-term sovereign credit rating in local and foreign currencies to B- from B, placing the outlook at stable, according to a report by the agency on Friday.

File Photo: A view shows the Standard   Poor s building in New York s financial district. REUTERS
File Photo: A view shows the Standard Poor s building in New York s financial district. REUTERS


The agency affirmed Egypt's short-term sovereign credit rating in local and foreign currencies at B.

S&P attributed its downgrading decision to a severe shortage of hard currency.

"The downgrade reflects the recurring delays to implement the monetary and structural reforms, exacerbate imbalances in the currency market, deteriorate the net foreign asset position of systemic banks, and delay critical IMF disbursements," S&P said.

Meanwhile, the future outlook depends on the Egyptian government's efforts to accelerate the pace of key monetary and economic reforms that could help bridge Egypt's large external financing gap, the report added.

Among the most dominant reforms that need to be accelerated is increasing the private sector participation in public investments to 65 percent within three to five years from 30 percent currently.

Commenting on S&P's decision, Minister of Finance Mohamed Maait confirmed Egypt's commitment to boost structural reforms and procedures during the coming period, intensify the efforts to increase foreign exchange inflows, and reduce the domestic debt bill, according to the ministry's statement on Saturday.

"Changing the outlook from negative to stable reflects structural reforms that the Egyptian government undertook recently which contributed to achieving financial discipline," he added.

Egypt has implemented around $2.5 billion exit deals during the first quarter of FY2023/2024, which increased foreign exchange inflows and provided the financing required to meet the country's needs, Maait stated.

Ahmed Kouchouk, vice minister of finance for fiscal policies and institutional reform, indicated that Egypt exerts efforts to enhance the private sector participation in economic activity, by improving the business environment and raising competition.

Kouchouk said that the Egyptian authorities focus on encouraging and attracting private sector investments, including foreign direct investments (FDI), and pushing productive activities.

EGP devaluation

The agency anticipated that the upcoming floating of the Egyptian pound would bring the EGP close to its level in the parallel market at EGP 40 against the US dollar.

"In our view, the authorities may be tempted to re-introduce foreign currency controls as they have done previously, should currency volatility worsen," S&P stated.

In the same context, Fitch Solutions expected that by the end of 2023, the EGP will be devaluated by 18.6 percent to reach around EGP 38 per $1.

Economic growth

S&P has expected Egypt's economic growth to average about 4 percent over the next three years, noting that this percentage depends on the exchange rate and inflation trends besides the consequences of the Israeli-Hamas conflict.

"Due to the foreign currency crunch, we expect GDP growth to slow further in FY2024," S&P highlighted.

Furthermore, the International Monetary Fund (IMF) revised its projections for Egypt’s real GDP growth in 2023 and 2004 to 4.2 percent and 3.6 percent, respectively.

Earlier in October, the World Bank (WB) raised its forecasts for the country’s real GDP growth in 2023 to 4.2 percent from four percent, downgrading the estimations for 2024 to 3.7 percent from four percent.

Moody's also lowered Egypt’s credit rating from B3 to Caa1 and changed the outlook from negative to stable, attributing its decision to the foreign currency crunch in the face of increasing external debt service payments over the next two years.

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