24 January 2019 03:16 PM

Fitch revises Egypt's outlook to positive; affirms at 'B'

Wednesday، 17 January 2018 - 11:02 AM


Fitch Ratings has revised the Outlook on Egypt's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at 'B'. 

In a report released 
Tuesday, Fitch said the Egyptian government made significant progress with its reform program in 2017 and remains on track with the USD 12 billion three-year Extended Fund Facility (EFF) signed with the IMF in November 2016. 

"Fiscal consolidation is proceeding, although it will require a multi-year effort to reverse the increase in general government debt/GDP witnessed since the Arab Spring uprisings," read the report. 

The Central Bank of Egypt's (CBE) exchange rate reform has proved a turning point for the economy and Egypt's external finances; and macroeconomic stability has started to improve following an inflationary spike, it added.

Meanwhile, Fitch forecast the budget sector deficit to narrow again in FY18, to 9.7% with a primary deficit close to balance. 

It also expected Egypt to achieve a primary surplus in FY19 for the first time in more than 15 years. 

On the spending side, the report added, there has been restraint of the wage bill, which grew by 6.4% year-on-year in July-December, well below inflation rates. 

"This reflects ongoing implementation of wage reforms under the civil service law of 2016. The wage bill is budgeted to amount to around 5.8% of GDP in FY18, down from more than 8% in FY14 and FY15," it said.

The report also forecast general government debt/GDP to fall to 93% in FY18 from a peak of 103% in FY17, marking an inflection point in the strong upward trend since the 2011 revolution. 

Fitch noted that by the end of FY19, it expects general government debt/GDP to have fallen to 88%. 

The CBE's stock of international reserves reached USD37 billion in November (compared with USD19.1 billion in October 2016). 

This equates to around six months of current external payments, up from less than three months during 2012-15.

Fitch also expected the Current Account Deficit (CAD) to narrow further in 2018-19, assuming a stable trade deficit in US dollar terms and further growth, albeit much more moderate, in tourism and remittances. 

It indicated that large increases in gas output will help the trade deficit.

Meanwhile Minister of Finance Amr el Garhy welcomed the report that released on Tuesday 16/1/2018  by Fitch, in which the ratings agency revised the outlook on Egypt's Long-Term Foreign-Currency Issuer Default Rating (IDR) to positive from stable and affirmed the IDR at 'B'.

The report is a key step towards boosting confidence in Egypt’s economic reform program, which in turn will contribute to luring more foreign investments to the country, the minister said in press statements.


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