Moody’s believes the pace of economic reforms in Egypt will continue to show gradual improvements but the recovery could be slower than expected, according to an emailed report. "The implementation of the IMF program’s targets, including reductions in fiscal deficits and government debt levels, as well as improvements in Egypt’s external liquidity position, will help address Egypt’s key credit challenges … However, ambitious fiscal consolidation targets will be challenging to achieve and could face implementation risks in a scenario of mounting public discontent,” said Steffen Dyck, a Moody’s Senior Credit Officer and co-author of the report. Moody’s also believes the IMF’s economic projections for Egypt are too optimistic and assumes “somewhat lower growth assumptions and potential fiscal slippage, both in the near- and medium-term.” The report suggests the fiscal deficit will hit 11% of GDP in FY2016-17 dropping to 8.5% of GDP by FY2018-19, higher than the IMF’s forecasts 10% and 6.1% of GDP for the two years, respectively. It also anticipates that the current account deficit as a percentage of GDP will rise in the fiscal year ending this June, but start falling a year after.

However, Moody’s expects the structural reforms to lead to “slow but steady improvements for the sovereign credit profile beyond the timeframe of the IMF program” and sees incoming funding to Egypt through investments and the IMF as supporting the balance of payments and international reserves position. Dyck says “even if all reforms are successfully implemented and notwithstanding the significant improvement we expect, Egypt’s credit profile will still be marked by very weak fiscal strength. Credit improvements are likely to occur in the longer term, subject to sustained reforms and (geo)political stability, which would in turn support a return to higher growth rates.”