• Egypt’s stable outlook supported by fiscal reform momentum
  • Donor support helped improve Egypt’s international liquidity

Egypt’s fiscal reforms support the country’s B3 rating and stable outlook, according to a recent report by the New York-based ratings agency Moody’s.

Moody’s expects that high fiscal deficits and government debt levels will “gradually reduce”.

The report’s optimistic outlook is rooted in the country’s domestic market that Moody’s 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.

Moody’s says that Egypt’s 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 government’s 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 Egypt’s position in terms of receiving grants and financial aid and support from Gulf countries.

Donor support helped improve Egypt’s 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 Egypt’s 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”.

Egypt’s race to attract investment

Cairo moves to tackle bureaucracy as investors wait for more reforms

Egypt’s self-proclaimed economic renaissance, which was championed by President Abdul Fattah al-Sisi during the Egypt Economic Development Conference in March, promised investors drastic economic and political reforms in order to deliver a pledge of an improved business environment.

Despite Egypt’s ambitious plans, eight months on from the conference many investors are still waiting for the government to deliver on its promises. Several major schemes have stalled and many foreign companies are holding back as they wait for the promised reforms. Read more.