Egypt’s B3 rating and stable outlook is supported by the country’s momentum of economic and fiscal reforms, says US ratings agency Moody’s in a research note published on 27 September.

“Although still below pre-revolution levels, growth has started to pick up, and investor sentiment has improved. We also expect that high fiscal deficits and government debt levels will gradually reduce,” says the research note.

Moody’s also confirmed that the country’s outlook remains stable despite what it has called a ‘slower-than-expected’ implementation of fiscal and economic reforms.

According to Moody’s Egypt’s biggest challenges at the moment are that government funding costs remain high at a time when inflationary pressures are also high. Egypt is also faced with high unemployment rates, especially among the youth although political stability and the security situation in Cairo and the Nile Delta have improved.

The Moody’s research note goes on to add what is needed for an improvement in Egypt’s rating: an accelerated implementation of measures to lower fiscal deficits and government debt, growth levels matching pre-2011, an improvement to the levels of foreign reserves with reduced reliance on external donor support and finally an improved security situation in the Sinai peninsula and other tourist hotspots.

The agency’s estimates claim the introduction of fiscal and economic reforms, which have been accelerated by the IMF agreement, will bring down the fiscal deficit down to 10 per cent of GDP by 2019.

The government has already pressed ahead with a new round of electricity price hikes, and more recently agreed to impose a 13 per cent value-added-tax (VAT), which is forecast to bring in up to £E30bn ($330m) in new tax revenue.

Egypt’s efforts to improve its economy has been reliant on support from Gulf countries. Saudi Arabia, the UAE and Kuwait have provided Egypt with a combination loans, grants and investment packages totaling billions of dollars since 2015.

Although this support is expected to continue, it is also expected to slow down as GCC governments grapple with lower oil prices and reduced state revenues. Although rating agencies have encouraged Cairo to reduce its reliant on international donors, Egypt has pressed ahead with efforts to secure funding from international financial institutions such as the World Bank and the International Monetary Fund (IMF).

In August Egypt finalised a staff-level agreement with the IMF for a $12bn loan. Cairo also recently received the first $1bn installment of a $3bn loan from the World Bank. Further to this, Cairo is understood to be looking towards China and Saudi Arabia for further funding to plug the $6bn finance gap required to qualify for the IMF loan, which is expected by the end of this year.

Egypt’s foreign reserves have witnessed a drastic decline over the past few years as revenues from tourism, the Suez Canal and foreign investment fall. Foreign reserves exceeded $30bn in 2011, compared with $16.6bn in August this year.