September 1 2018

In a Nod to Reforms, Moody’s Raises Egypt Credit Outlook

Source: Bloomberg

Egypt’s credit outlook was raised from stable to positive by Moody’s Investors Service, which cited progress in implementing a program backed by the International Monetary Fund to bolster economic growth and repair public finances.

The country’s long-term rating was kept at B3, six levels below investment grade. The positive outlook signals that a downgrade is currently very “unlikely,’’ Moody’s said in a statement late on Tuesday.

“The substantial progress made by the government in implementing reforms agreed with the IMF has imparted a degree of financial stability not present earlier in the decade,” Moody’s said. That has helped offset debt refinancing risk, which “remains a key credit challenge for the sovereign in an increasingly turbulent global financial environment,” it said.

Egyptian authorities in 2016 launched an aggressive effort to end a crippling dollar shortage that had stymied business activity and limited investor interest. The lifting of exchange rate restrictions, accompanied by the slashing of fuel and utility subsidies, were key parts of the broader effort to shrink the budget deficit and revive economic growth.

Moody’s also said:

  • Egypt’s strengths arise mainly from its large and diverse economy, while weaknesses include high debt burden and “very large” annual financing needs
  • Signs of business environment reforms “offer the prospect of a sustainable, inclusive growth path capable of improving competitiveness and absorbing the country’s rapidly expanding labor force”
  • Government-led infrastructure projects, such as the new administrative capital, contribute to “fostering growth and employment in the construction sector”
  • Political stability that has been achieved “seems likely to be sustained,” raising the likelihood of the government continuing along the current policy path