The Egyptian economy is showing resilience in the face of international, regional, and national challenges, Minister of Finance Hany Khadry Dimian said Saturday in response to the “B” rating Fitch agency gave Egypt.
Fitch affirmed Friday Egypt’s long-term foreign, local currency issue default ratings (IDR), and senior unsecured foreign and local currency bonds at a B rating, stating that the outlook is “stable”.
“The Country Ceiling has been affirmed at ‘B’ and the Short-term foreign currency IDR at ‘B’,” the agency said.
Dimian said the continuation of applying financial and economic reforms, which was initiated by the government last year, is necessary.
The agency discussed the drop in the budget deficit from 17.6% of the gross domestic product (GDP) in fiscal year (FY) 2014 to 12.5% of GDP in FY 2015, highlighting that a further reduction can be anticipated in the current fiscal year.
“However the introduction of VAT [value-added tax], the largest single revenue-raising measure, has been delayed,” the agency said, noting that it “expects fiscal consolidation throughout the forecast period, but with savings partially offset by higher social spending and spending commitments in the new constitution the deficit is forecast to remain high”.
Dimian has made several announcements that the VAT will be introduced prior to the end of 2015. The government has however taken no such step yet. Fitch said it expects a 5% debt by the end of FY 2017.
“Fitch assumes that [economic] growth will be weaker in FY16 and will average around 4% over 2016 and 2017,” the agency said. “Inflation is above peers and is forecast to remain near 10%, with structural rigidities aggravated by exchange rate deprecation.”
On 30 November, the Egyptian government set its economic targets for fiscal year FY 2016/2017, setting the budget deficit target at 9.5% of the GDP, with expected economic growth of 5%-5.5%.
For the current FY 2015/2016, the government set the target for the deficit at 9.9%, approximately EGP 281bn.
In October 2014, Moody’s changed Egypt’s outlook from negative to stable, attributing the upgrade to the stabilised political and security situation. Two months later, Fitch upgraded Egypt’s rating from B- to B, with a stable outlook.
Prior to the Economic Summit in March, Fitch Director Paul Gamble told Daily News Egypt that Egypt is slowly reclaiming credit ratings it has lost over the years of political uncertainty and unrest as the economy is gradually responding to extensive revival attempts.