Serious about reform

Doaa A. Moneim , Tuesday 9 May 2023

Following downgrades by several rating agencies, the government has been fending off criticism of its economic policies, writes Doaa A. Moneim

Serious about reform


The government is targeting revenues of $2 billion from the sale of state-owned assets. The sum is needed to cover part of the government’s financing needs, estimated by the International Monetary Fund (IMF) at $17 billion over the next four years.

“We are serious about implementing the offering programme. Agreements are already being finalised, and details will soon be announced,” Prime Minister Mustafa Madbouli said in a statement on Monday following a meeting that included the Central Bank governor and the minister of planning and CEO of the Sovereign Fund of Egypt.

The prime minister’s statements were intended to reassure the market after several international credit rating agencies criticised the slow pace of privatisation. Bottled drinks firm Safi and fuel retailer Wataniya are due to receive offers from strategic investors this month, the statement added.

Madbouli also said an international press briefing will be held within days to detail the ongoing situation of Egypt’s economy.

On Friday, Fitch Ratings revised Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) B+ to B, switching its outlook to negative.

Fitch attributed its first downgrade of Egypt in a decade to “high external financing requirements, constrained external financing conditions and the sensitivity of Egypt’s broader financing plan to investor sentiment”. It also said that further delays in the transition to a flexible exchange rate is expected to further lower confidence in the Egyptian economy and, potentially, delay the ongoing $3 billion loan programme with the IMF. Egypt has so far received $347 million, the first tranche of the 46-month arrangement under the Extended Fund Facility. A second tranche is due to be disbursed after the first review. Originally scheduled for mid-March, the review has yet to take place.

The review depends on Egypt fulfilling its commitments and not on a time plan, director of the IMF’s Middle East and Central Asia department Jihad Azour told Al-Ahram Weekly in a hybrid press conference held in Dubai last week.

Sources familiar with the matter told the Weekly that failure to level the playing field with the private sector was also a factor dallying the IMF review.

Mohamed Abu Nar, a banking expert and visiting lecturer in economics at Cairo University, says recent downgrades send a negative message to foreign investors.

“These ratings updates will, unfortunately, raise the cost of borrowing for Egypt. Lenders will deal with the Egyptian market with a risk vs reward approach when it comes to okaying new loans to the country.”

“Egypt can overcome this trouble,” says Abu Nar, “through accelerating its shift towards a flexible exchange rate and interest rates regimes as well as expediting initial public offering (IPO) and privatisation programmes. This is the only way for the country to improve its credit rating indices.”

He points out that Egypt has recently taken actions to attract foreign direct investments, including granting golden licences to investors, establishing the Higher Council for Investment and passing a new investment act. And President Abdel-Fattah Al-Sisi always talks up the investment atmosphere in Egypt during the meetings he holds with foreign investors.

Following Fitch Rating’s downgrade, Minister of Finance Mohamed Maait told a TV talk show that credit rating agencies were showing bias against Egypt.

Standard & Poor (S&P) revised Egypt’s credit outlook from stable to negative in April, though it affirmed the country’s B/B long and short-term foreign and local currency sovereign credit ratings. In February, Moody’s downgraded Egypt’s credit rating and long-term foreign- and local-currency issuer ratings from B2 to B3, though it changed the outlook from negative to stable.

In a statement issued this week, Maait ascribed Fitch Ratings’ decision to extreme external pressures resulting from complex global challenges, including the war in Eastern Europe, global inflation, increased interest rates, the cost of financing and contractionary policies adopted by central banks around the world which had resulted capital outflows from emerging markets, including Egypt.

“Egypt is pushing ahead with a package of reforms to enhance economic resilience against external shocks. There is also a package of structural, monetary and fiscal measures that will bridge the financing gap Egypt is facing,” said Maait.

* A version of this article appears in print in the 11 May, 2023 edition of Al-Ahram Weekly

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