Moody’s upgrades Egypt to B3, keeps positive outlook

Moody’s Ratings upgraded Egypt’s sovereign credit ratings to B3 from Caa1 on Friday, citing sustained fiscal consolidation, structural reforms, and stronger external buffers, and kept its outlook positive.

The upgrade covers the government’s long-term local- and foreign-currency issuer ratings and its foreign-currency senior unsecured ratings. Moody’s also raised the foreign-currency senior unsecured medium-term note programme to (P)B3 from (P)Caa1. They did the same for the programme of the government-owned Egyptian Financial Company for Sovereign Taskeek, whose issuances it views as ultimately obligations of the government.

“The positive outlook reflects the prospect that sustained fiscal discipline and continued reforms reduce government debt and interest burdens faster than in our baseline.” Moody’s said. “This could be driven by stronger growth, more effective revenue collection, and a faster decline in domestic borrowing costs as inflation eases and investor confidence strengthens.”

The agency said fiscal consolidation and reforms had put government debt and interest burdens “on a declining path, albeit from elevated levels,” helped by stronger revenue collection and spending restraint. It said the shift to a flexible exchange rate and tighter monetary policy had strengthened external buffers and the economy’s capacity to absorb shocks.

Egypt’s primary budget surplus rose to 4.9% of gross domestic product in the fiscal year that ended in June 2026, or 4.1% excluding one-off revenue, up from 3.5% in fiscal 2025 and 1.6% in fiscal 2023, Moody’s said.

Tax revenue rose by about 1 percentage point to 13% of GDP, reflecting better compliance, the removal of exemptions and expanded digital tax administration, while non-interest spending fell to 10.6% of GDP from 10.9%, it said.

Government debt fell to 81.8% of GDP in June 2026 from 95.2% in June 2023, Moody’s said, helped by the fiscal adjustment, sustained growth and a real appreciation of the pound.

Moody’s said debt affordability remained exceptionally weak compared with similarly rated sovereigns but had begun to improve. Debt fell to just under 67% of government revenue in fiscal 2026 from a record 73% in fiscal 2025, and interest payments declined to an estimated 59% of general government revenue from 63%.

The agency expects Egypt to maintain fiscal consolidation after its International Monetary Fund (IMF) programme ends in December 2026, with primary surpluses slightly below 5% of GDP over the medium term, in line with the fiscal 2027 budget plan. If surpluses are sustained and financing costs decline gradually, debt could fall to just below 70% of GDP and interest payments to about 50% of revenue by the end of the decade, it said.

“We expect the government to maintain fiscal consolidation after the current IMF program concludes in December 2026, with primary surpluses slightly below 5% of GDP over the medium term, broadly in line with its budget plan for fiscal 2027. The plan includes new revenue measures, continued public-investment controls and contingency spending reserves. Sustained primary surpluses and a gradual decline in financing costs should support further reductions in debt and interest burdens, to just below 70% of GDP and 50% of general government revenue, respectively, by the end of the decade.”

Moody’s credited the changes to Egypt’s monetary framework since March 2024, including the unification of the foreign-exchange market and the move to a flexible exchange rate, with eliminating chronic foreign-currency shortages and allowing the currency to adjust without draining reserves, unlike in 2022.

It said the framework was tested by a sharp rise in oil prices and a confidence shock after the Middle East conflict began in February 2026. Authorities adjusted domestic fuel and electricity prices, used spending contingencies and energy-conservation measures, expanded targeted social support and let the currency adjust, rather than reversing energy-price reforms, Moody’s said.

Net international reserves rose to $57 billion in September 2026 from $52 billion at the end of 2025, it said. Non-resident holdings of local-currency government securities recovered to about $55 billion in June 2026 from around $50 billion immediately before the conflict.

Moody’s raised Egypt’s local-currency ceiling to Ba3 from B1 and its foreign-currency ceiling to B2 from B3. It said the gap between the local-currency ceiling and the sovereign rating reflects a large public-sector footprint that inhibits private-sector development, and the gap between the two ceilings reflects transfer and convertibility risks given large foreign-currency financing needs relative to official reserves.

The positive outlook reflects the possibility that debt and interest burdens fall faster than Moody’s baseline, driven by stronger growth, more effective revenue collection, and a faster decline in domestic borrowing costs as inflation eases. Faster progress on state-asset divestments, and quicker recoveries in Suez Canal activity and domestic hydrocarbon production, could add upside, it said. Canal receipts and traffic have begun to recover but remain well below levels seen before the Red Sea shipping disruptions began in late 2023.

A faster-than-expected fall in debt and interest burdens, along with a durable strengthening of external buffers, could lead to a further upgrade, Moody’s said. A return to a stable outlook could follow if debt-affordability metrics are unlikely to improve beyond its baseline or if external buffers come under pressure. A weaker commitment to fiscal discipline, limited progress on revenue, or renewed external imbalances or currency shortages could also weigh on the rating, it said.

“A faster than currently expected decline in government debt and interest burdens, together with a further durable strengthening of external buffers, could lead to an upgrade. Continued implementation of structural reforms that support higher private-sector investment, productivity and potential growth would reinforce upward rating pressure.

“A return to a stable outlook could follow if we concluded that government debt and debt-affordability metrics are unlikely to improve beyond our baseline, or if external buffers came under renewed pressure. A weakening of the government’s commitment to fiscal discipline or limited further progress on revenue mobilization could also exert negative pressure on the rating. Furthermore, renewed buildup of external imbalances or foreign-currency shortages would also weigh on the rating, signaling downside risks to official foreign-currency buffers and weakening the government’s capacity to service its foreign-currency obligations.”

Environmental, Social, Governance (ESG) Considerations

Moody’s said Egypt’s Credit Impact Score of CIS-4 indicates the rating is lower than it would be without environmental, social and governance risks, mainly social ones. It cited low-income levels, high poverty, and elevated youth unemployment, as well as water scarcity, dependence on the Nile, and pollution. Governance remains a constraint because of weak voice and accountability, it said.

Moody’s put Egypt’s economic resiliency at baa3. It listed 2025 real GDP growth at 4.4%, December-to-December inflation at 14.9%, a general government deficit of 6.6% of GDP, a current-account deficit of 4.2% of GDP, and external debt at 44.3% of GDP.