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Tuesday, 26 November 2019

Fitch affirms Egypt’s long-term FX issuer default rating at B+ with a stable outlook

Fitch Ratings has affirmed Egypt’s long-term foreign-currency issuer default rating at ‘B+’ with a ‘stable’ outlook. The agency said that Egypt’s rating affirmation is supported by “a recent track record of economic and fiscal reforms, and improvements to macroeconomic stability and external finances.” On the flipside, Egypt’s “still large fiscal deficits, high general government debt / GDP and weak governance scores (as measured by the World Bank governance indicators” weighed on ratings. Egypt is expected to stay the course on reforms, particularly if we secure a non-loan agreement with the IMF to “help anchor structural and fiscal reforms,” Fitch says. Tap or click here for the full report.

Egypt’s GDP is expected to grow at a 5.5% clip, “with balanced risks to this forecast,” the ratings agency says. Inflation is expected to average 9.5% this year and continue cooling in 2020-2021 to average 8%, while the CBE is expected to maintain positive real interest rates. Fitch sees Egypt’s budget deficit narrowing to 7.6% of GDP during the current fiscal year, and the primary budget surplus recording 2.0%. The government is targeting a deficit of 7.2% this fiscal year. The ratings agency notes that these projections are supported by lower interest payments, but there remains a “contained risk” that a portion of government-guaranteed debt could crystalize on the state’s balance sheet.

Egypt’s current account deficit is expected to widen in 2021 to 3.2% of GDP, from 2.3% in 2018, “placing modest downward pressure on foreign reserves and the exchange rate.” The ratings agency still expects the country’s FX reserves to remain sufficient to cover 4.5 months of external payments. Fitch notes that, while Egypt’s net external debt has “risen sharply,” it remains below the median of its B-rated peers.

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