Egypt secures upgrade from Moody's

08 April 2015

Country’s rating improves on back of fiscal reforms

  • Rating upgraded to B3 from Caa1 with a stable outlook
  • Upgrade driven by economic growth and reforms
  • Egypt’s external vulnerabilities are also reducing, says Moody’s

US ratings agency Moody’s Investors Service has upgraded Egypt’s rating to B3 with a stable outlook, following the country’s efforts to reform its economy and drive growth.

The country’s issuer and senior unsecured bond rating was previously Caa1.

The ratings agency’s decision reflects its expectations that real GDP growth in Egypt will recover to about 4.5 per cent year-on-year for the fiscal year 2015, which is due to end in June.

It is then expected rise to about 5-6 per cent over the coming four years.

Egypt’s external vulnerabilities are also reducing, the agency says.

The country’s net international reserves stood at $15.5bn at the end of February, which is sufficient to cover the country’s forthcoming debt repayments this year.

Pledges of billions of US dollars in deposits from the Gulf countries of Kuwait, Saudi Arabia and the UAE during the Egypt Economic Development Conference (EEDC) in mid-March have also bolstered the ratings agency’s confidence in the country’s economic stability.

The final driver behind the upgrade is Egypt’s continued efforts to implement fiscal reforms to improve public finances.

The government has begun to reform the country’s expensive fuel subsidies to reduce expenditure, and is also developing means of increasing revenues.

Measures include introducing value-added tax (VAT) in the coming fiscal year.

Moody’s forecasts that general government deficit will decline to about 10 per cent of GDP in the fiscal year 2015, before declining to 9.3 per cent by 2016.

The agency also predicts that general government debt will decline gradually to less than 90 per cent of GDP during 2015-16.

Declining inflation rates will help Egypt reduce its borrowing costs. The government is also set to diversify its funding options as it prepares to issue US dollar bonds as well as considering tapping the sukuk or Islamic finance market in the coming years.

Moody’s upgraded the country’s foreign currency bond ceiling to B3 from B2, the foreign-currency deposit ceiling to Caa1 from Caa2, and the local currency country risk ceiling to Ba2 from Ba3.

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