Fitch Ratings affirmed, on Wednesday, Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a stable outlook.
The agency said that Egypt’s ratings and outlook are supported by its recent track record of fiscal and economic reforms, which the Egyptian authorities are furthering, as well as its large economy, which has demonstrated stability and resilience through the global health crisis.
However, the ratings are constrained by still large fiscal deficits, high general government debt to GDP ratio, and domestic and regional security and political vulnerabilities, for example as reflected in lower scores on World Bank governance indicators compared with the ‘B’ median.
“Egypt’s economy has outperformed the vast majority of Fitch-rated sovereigns over the past year,” the Fitch report said.
It cited a low incidence of coronavirus cases and deaths allowed for a measured public health response and supported resilient domestic demand, even as tourism and other export-oriented sectors sagged.
Fitch forecasts real GDP growth of 3% in Egypt for fiscal year (FY) 2020/21, down from 3.6% in FY 2019/20 and 5.6% in FY 2018/19. The recovery of tourism to Egypt and shipping through the Suez Canal, supported by a global economic recovery, will drive an increase to 6% growth in FY 2021/22 (above potential growth).
Meanwhile, inflation has continued to trend down, and Fitch expected it to average 5% in FY 2020/21 and 7% in FY 2021/22, broadly in line with FY 2019/20 but well below the FY 2018/19 rate of over 13%.
Moderating inflation and exchange rate stability allowed the Central Bank of Egypt (CBE) to ease policy in support of economic and credit growth.
The CBE cut its headline overnight deposit rate by 300bp in March 2020 and 100bp in November 2020, to 8.25%. It also guaranteed EGP 100bn (1.7% of GDP) of lending by banks to targeted sectors at preferential interest rates, alongside a raft of regulatory forbearance measures. Fitch expected bank credit to the private sector to grow 20% year-on-year in FY 2020/21, in line with FY 2019/20 and up from 12% in FY 2018/19.