Moody’s Investors Service (“Moody’s”) changed the outlook on the Government of Egypt’s long-term issuer ratings to positive from stable and affirmed the B3 issuer ratings.
At the same time, Moody’s affirmed Egypt’s senior unsecured ratings at B3, and its senior unsecured MTN programme rating at (P)B3.
Moody’s decision to change the outlook to positive reflects the continuing structural improvements in the fiscal and current account balances, resulting from the ongoing implementation of the home-grown International Monetary Fund (IMF)-backed reform programme.
Moreover, early signs of business environment reforms offer the prospect of a sustainable, inclusive growth path capable of improving competitiveness, and absorbing the country’s rapidly expanding labour force.
Moody’s added that Egypt’s credit profile presents a stark contrast between an economy, which is large and diverse compared to rating peers; and, on the other hand, high refinancing risk created by a high debt burden, and a very high interest burden, resulting in very large annual financing needs (although a substantial share will continue to be met by the domestic banking system).
Those latter features have dominated Moody’s assessment of Egypt’s credit profile in recent years. The country’s refinancing risk remain a key credit challenge for the sovereign in an increasingly turbulent global financial environment created by, among other things, the prospect of rising interest rates, and shocks to global trade.
Moody’s noted that the significant progress made by the government in the implementation of reforms agreed with the IMF, imparted a degree of financial stability not present earlier in the decade.
It stated further that the primary deficits have shrunk and the debt burden has begun to fall. Foreign exchange buffers have been rebuilt.
“If sustained, the authorities’ commitment to reform has the potential to impart to the credit profile a degree of resilience to economic and financing shocks, which could support a higher rating notwithstanding what are likely to remain high annual refinancing requirements,” according to Moody’s.
“The continued implementation of economic and financial reforms supports the growth of Gross Domestic Product (GDP) at higher rates, approaching 6%, noting that this level helps to absorb the country’s accelerating labour force,” Moody’s added.
Moody`s explained further that measures such as the implementation of the investment and bankruptcy laws and an improved land allocation mechanism contributed to improving Egypt’s competitiveness in the World Economic Forum’s ranking over the past year and should foster investment, including foreign direct investment, in non-energy sectors, such as tourism, agro-processing and manufacturing.
sIt assured that the implementation of large infrastructure projects, such as the New Administrative Capital City led by state-owned Economic Authorities, will also contribute to fostering growth and employment in the construction sector.
For his part, Mohamed Moeit, Minister of Finance, commented on Moody’s upgrade outlook in a press statement on Wednesday, stating that improving Moody’s outlook for Egypt contributes to attracting investments.
He continued to say that raising Moody’s credit rating outlook for the Egyptian economy from stable to positive is a positive step which reflects the continued efforts of the Egyptian government to implement its comprehensive programme of economic reform.
“We are committed to implement the necessary economic, financial, and social structural reforms to ensure the sustainability of the comprehensive economic reform that was successfully carried out over the past two years in order to advance growth prospects, create real jobs, and inject more investment into human development.” he assured.