- Fitch International raised its outlook on Egypt’s credit rating to “positive” from “stable,” supported by a decline in external financing risks in the near term due to the economic measures taken by the state and the “Ras El Hekma” deal with the UAE.
- The credit rating agency indicated that its decision came against the backdrop of “a significant decrease in the risks of external financing in the near term” due to the “Ras El Hekma” deal with the Emirates, the transition to a flexible exchange rate policy, tightening monetary policy, as well as additional financing from international financial institutions and the return of... Non-resident inflows into the local debt market, according to the credit rating agency.
- According to Bloomberg, the most important points mentioned by Fitch in its report included:
- The Ras Al-Hekma investment deal “confirms the strength of the financial support provided by the Gulf Cooperation Council countries to Egypt.”
- The rating agency has “somewhat greater confidence that exchange rate flexibility will be more sustainable than in the past.”
- Initial steps to contain off-budget spending “will help reduce public debt sustainability risks.”
- Non-resident holdings of domestic debt rose to $35.3 billion, from $16.6 billion at the end of 2023.
- Egypt's total foreign exchange reserves are expected to rise by $16.2 billion in fiscal year 2024 to $49.7 billion.
- It expects foreign currency reserves to rise to $53.3 billion by fiscal year 2025.
- Further escalation of the regional conflict poses a risk to tourism and Suez Canal revenues, which we already expect to decline by 6% and 19% respectively in FY2024.
- Egypt faces a continuing risk of increasing social instability fueled by high inflation and structural challenges that include high youth unemployment and weak governance.
- GDP growth is expected to slow 0.7 percentage points in FY2024 to 3.1%, before accelerating to 4.7% in the next fiscal year as confidence, remittances, real income and FDI spending strengthen.
- The general government deficit is likely to shrink 0.3 basis points in FY24 to 5.5% of GDP, with fiscal revenues from the Ras El Hekma deal offsetting a 2.7% of GDP rise in debt interest.
- The debt interest/income ratio is expected to peak near 68% in FY2025, the highest among Class B countries and more than five times the Class B average of 13% in 2024.
- This ratio is expected to fall to 45%, which is still extreme, in FY2028, supported by the significant decline in interest rates and the short average maturity of domestic debt.
