S&P Global Ratings has affirmed Egypt’s B credit rating with a stable outlook on the back of expectations that fresh financial support from the IMF and the GCC will help us meet our “large” external funding needs. The ratings agency believes that the Madbouly government’s track record of reform and the country’s strong growth outlook will mean that Egypt will be able to count on lenders to meet its foreign funding needs for FY 2022-2023, which total around USD 18 bn.

FDI to provide the bulk of foreign currency: S&P says that Egypt will receive almost USD 10 bn of foreign direct investment during the current fiscal year, up from USD 8.9 bn last year.

International lenders to provide up to USD 6 bn: The rating agency expects the upcoming IMF package to be in the range of USD 2-3 bn, while another USD 2-3 bn could be raised from the international bond market.

That USD 2 bn shortfall? That’s where the GCC could come in. S&P thinks that GCC countries will pledge more funds to cover any funding gaps “given [Egypt’s] track record, the reduced funding needs, and the importance of stability in Egypt to the region as a whole.” The UAE, Saudi Arabia and Qatar have together pledged some USD 22 bn to Egypt since the start of the war in Ukraine, though USD 6 bn in FDI is yet to enter the country, the rating agency wrote.

Exchange rate flexibility — a key condition for the IMF agreement — will help “absorb the impact of future external shocks on the economy,” the rating agency wrote. Enterprise readers are using an average figure of EGP 22.12 to the greenback in their 2023 budgets, while business leaders told Goldman Sachs they see the EGP settling somewhere between 22-24. The EGP has lost a little more than a quarter of its value against the greenback this year.

The economy will grow at an average of 4.0% over the next two to three years, the ratings agency says, with the construction and energy sectors driving growth, alongside structural reforms and increased reliance on investments, exports, and private sector-led growth.

REMEMBER- The government wants to more than double the private sector’s role in the economy to 65% over the next three years, and attract USD 40 bn in investment by 2026.

Current account deficit to narrow to 3.0% in FY 2022-2023: “We expect import prices to moderate, while export volumes and remittances from Egyptians living abroad remain robust,” S&P Global writes, adding that tourism arrivals could improve on the back of COP27 and the Grand Egyptian Museum’s inauguration slated for later this year. The current account deficit narrowed to 3.7% in FY 2021-2022, buoyed by oil and non-oil exports, rising tourism receipts, and a jump in FDI.

Government spending to rise, budget deficit to remain at 6.0% over the next three years: The ratings agency sees the budget deficit hovering around 6.0% until FY 2024-2025, as government spending on subsidies, social benefits, capital investments and salaries rises. Our budget deficit narrowed to 6.1% in FY 2021-2022.

CBE’s move to hike reserve ratio gets thumbs up: The Central Bank of Egypt’s move to increase bank reserve ratios to 18% from 14% “should help manage inflation expectations and limit capital flight, to some extent, by increasing real returns on the government’s local currency debt,” the ratings agency said.

Maait welcomes the outlook: S&P’s outlook is a sign of the economy’s stability and its ability to handle external shocks, Finance Minister Mohamed Maait said in a statement.

CLARIFICATION- An earlier version of this story said that S&P Global Ratings had affirmed Egypt’s credit ratings as BB. This referred to the agency’s separate foreign and local-currency ratings.