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Thursday, 9 May 2019

Moody’s sees Egypt’s long-term economic growth outperforming B-rated peers

Moody’s sees Egypt’s long-term economic growth outperforming B-rated peers: Egypt’s commitment to and progress on reforms since 2016 will help the economy reach a growth rate of 6% of GDP by 2021, Moody’s said in an issuer comment yesterday (pdf). The ratings agency sees Egypt’s growth surpassing the median for B-rated sovereigns over the next two years, “based on the assumption that the government will build on the initial boost in price competitiveness” from the EGP float. Moody’s also says it expects Egypt to stick to its “fiscal discipline” after the expiry of the IMF program this year, considering the shocks the economy has withstood during the emerging markets sell-off in 2H2018 and “the adopted measures to safeguard fiscal discipline during that period.”

Creating jobs, especially for women, is integral for Egypt to sustain more inclusive growth and to allow the country to “absorb the large number of new labour market entrants.”

The ratings agency also says renewed social upheaval or instability is unlikely in the short term, largely due to the heavy burden incurred by the 2011 upheaval, but notes that it could be an issue undermining growth potential in the medium and long terms.

On the flipside, Egypt’s debt service burden is expected to weigh heavily as a source of liquidity risk, Moody’s says. “Egypt high interest bill at about 9% of GDP and the short average maturity of its domestic debt stock (two to three years) result in annual gross financing needs worth 30%-40% of GDP over the next few years. These elevated financing requirements expose the governments to shocks in borrowing costs which would rapidly feed adverse debt dynamics.”

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