- Egypts stable outlook supported by fiscal reform momentum
- Donor support helped improve Egypts international liquidity
Egypts fiscal reforms support the countrys B3 rating and stable outlook, according to a recent report by the New York-based ratings agency Moodys.
Moodys expects that high fiscal deficits and government debt levels will gradually reduce.
The reports optimistic outlook is rooted in the countrys domestic market that Moodys says provides a significant funding base for the government. It also goes on to say that the successful issuance of an international bond in June signals global market access for Egypt.
Moodys says that Egypts stable outlook indicates that credit strengths and challenges are balanced with the B3 rating supported by economic and political stability, a return of foreign direct investment and faster-than-envisaged fiscal deficit and government debt reduction.
Despite this, the report says that Egypt still faces a number of challenges and says that some of the factors include the intensification of recent political instability, the inability of local banks to sufficiently fund government deficits and the sharp rise in the governments funding costs coupled with a significant decline in external payments from the Gulf countries.
The decline in oil prices and the war in Yemen have weakened Egypts position in terms of receiving grants and financial aid and support from Gulf countries.
Donor support helped improve Egypts international liquidity and the fiscal balance of payments surplus to levels similar to 2010.
The report goes on to say: Thanks to deposit inflows from the Arab Countries and net FDI inflows, the capital account reached a surplus of $17.6bn in fiscal 2015. Going forward we expect deposits inflows from the Arab countries to slow, whereas FDI inflows should continue growing given the positive growth momentum. Donor support helped to stop the decline in Egypts net international reserves temporarily. But external liquidity pressures persist, as reflected by the drop in net international reserves as at the end of September 2015. Pressures on foreign exchange reserves stem from the widening trade deficit in combination with lower deposit inflows, sovereign bond repayments and the build-up of arrears to international oil companies.
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