Capital Intelligence confirms Egypt’s sovereign ratings with stable outlook

Capital Intelligence Ratings (CI) announced, on Friday, that it has affirmed Egypt’s Long-Term Foreign Currency Rating (LT FCR) and Long-Term Local Currency Rating (LT LCR) at ‘B+’.

Meanwhile, the sovereign’s Short-Term Foreign Currency Rating (ST FCR) and Short-Term Local Currency Rating (ST LCR) have been affirmed at ‘B’, whilst the outlook for the ratings remains Stable.

The ratings reflect Egypt’s relative economic resilience and adequate level of foreign exchange reserves. It has been aided by the continued support of the International Monetary Fund (IMF) in countering the adverse impacts of the novel coronavirus (COVID-19) pandemic.

The ratings are also supported by moderate external indebtedness and the government’s willingness to resume fiscal reforms, CI highlighted.

CI further noted that foreign exchange (FX) reserves remain adequate, supported by international financial assistance and good access to international markets.

Additionally, Egypt has maintained full access to the international markets during the pandemic, tapping the markets twice in 2020. The country raised about $5.75bn through conventional Eurobonds and green bonds, with medium- and long-term maturities.

All the issues were oversubscribed, indicating favourable investor appetite. Moreover, Egypt’s sovereign spreads remained below their COVID-19 crisis peaks, albeit higher than those of some peers.

Portfolio flows have also started to recover, with net inflows reaching $9bn in the first quarter of FY 2020/21, compared to net outflows of $15bn in the last quarter (Q4) of FY 2019/20.

CI has revised its real GDP growth projection for FY 2020/21 upwards to 2.8%, from the previous 2.5%, due to the relative strength of domestic consumption and government spending.

Real output is forecast to grow by 5% in FY 2021/22, fuelled by domestic demand, including business investment, and a recovery in net exports. Inflation is expected to remain manageable in FY 2020/21, with CPI increasing by 6.2%, compared to 5.7% in FY 2019/20.

Nevertheless, the budget deficit is expected to increase slightly to 8.1% of GDP in FY 2020/21, compared to 7.9% in FY 2019/20. This reflected higher social spending aimed at shoring up the economy from the ongoing impacts of the COVID-19 pandemic.

Moreover, the debt-GDP ratio is expected to increase to around 96.9% in FY 2020/21, compared to 87.9% in FY 2019/20, exacerbated by lower nominal GDP growth and higher borrowing.

The Outlook for the ratings is Stable, indicating that Egypt’s sovereign ratings are expected to remain unchanged over the next 12 months, CI said.

The outlook balances CI’s current expectation that reforms and international assistance will contribute to further improving Egypt’s fiscal and external position over this period.

The Outlook could be revised to Positive in a year’s time if Egypt manages to reduce government debt further than expected and/or if the government introduces widespread structural reforms. These would need to reduce socioeconomic vulnerabilities, promote private sector participation, and enhance inclusive growth, CI concluded.