Egypt could get an upgrade from Moody’s as our credit profile proves “resilient” to shocks: Indicators that measure Egypt’s credit worthiness have proven “broadly resilient” to external financing shocks despite high exposure, Moody’s said in a report. This profile, which gives the country a solid credit rating of B2 with a stable outlook, puts us on track for an upgrade by the ratings agency pending “a marked improvement in debt affordability and reduction in gross financing needs,” Moody’s said.

On the flipside, a further reduction in foreign exchange reserves caused by another wave of capital outflows could lead to a rating downgrade, as would worsening debt affordability, the ratings agency said. Overall, our main weaknesses are “very large” gross financing needs of between 30 and 40% of GDP a year and creating jobs for a large number of annual entrants into the labor force, which is “a long-term social challenge.”

The health of public finances got the lowest possible score of “Ca” due to a widening deficit and the government having a “very high debt burden” that was compounded by — but not yet overcome by — our newly increased access to foreign creditors, Moody’s said. Egypt was on track to restore fiscal strength, but the covid-19 crisis and the new public spending it demanded meant the primary surplus is now projected to grow to 0.5% in FY2020-21 from 1.5% in FY 2019. But this only “delays rather than derails” fiscal consolidation efforts, due to resilience to many types of shocks. “Allowing for additional off-budget spending of about 3% of GDP in fiscal 2020 and 4% in fiscal 2021, we expect the general government debt/GDP ratio to rise to over 90% in fiscal 2021 before resuming its declining trend thereafter,” Moody’s said.

Other economic challenges mentioned by Moody’s include our exposure to the collapse in tourism earlier in the pandemic, a dip in industrial production from March to May, and long-term water challenges exacerbated by the filling of the Grand Ethiopian Renaissance Dam. Egypt’s moderate per capita income level, as well as general labor market challenges, prevented a higher economic strength score. “Over the longer term, more inclusive growth will depend on a rise in the employment rate — particularly among women — to absorb the large number of new entrants to the labor market.”

You can catch a press announcement of the report here. The full version is only available to Moody’s subscribers.