Fitch Ratings upgrade of Egypt’s credit rating shows confidence in the country’s ongoing economic reforms and will likely lure more investments, experts say.
“Fitch’s move means that Egypt’s economic position is improving and domestic conditions are stabilizing,” said Rashad Abdo, the head of the Egyptian Forum for Economic Studies.
The step cast its shadow on Egypt’s stock market as the country’s main index climbed 3.5 percent on Monday, after fall in the past two weeks over a drop in oil prices.
On Friday, Fitch Ratings raised Egypt’s credit rating to “B” from “B-” with a “stable” outlook, saying the authorities seemed committed to major reforms.
“Fuel subsidy cuts and tax hikes have been implemented as part of a clear five-year fiscal consolidation strategy,” the agency said in a statement.
“Power shortages are being tackled, overdue payments to oil companies reduced, investment laws revised and disputes with foreign investors settled,” it added.
Egyptian President Abdel Fattah al-Sisi announced cuts on subsidies when he took office in May, the move which Sisi’s predecessors were reluctant to take fearing public rage.
Fitch’s decision came after Moody’s Rating Agency and Standard & Poor’s upgraded Egypt’s credit rating, which signals “change of the world outlook, financial institutions in particular, at the country’s economic conditions,” Abdo told Xinhua.
It is the first time Fitch raised Egypt’s credit rating after years of degrading. “It is a new message for local and foreign investment circles that Egypt is on the right track of the economic reform, and that it sets the stage for an environment attractive to investments after dealing with long-years deformity,” Abdo explained.
Fitch’s move should motivate the government to move forward with the reform procedures to gain the trust of investors, which in turn will raise the growth, achieve economic development, improve the income levels and address the unemployment problem, he added.
Egypt has been struggling to revive its ailing economy over three years of turmoil which ousted two presidents.
Economic growth is accelerating, Fitch said, and year-on-year growth reached 6.8 percent in the third trimester of 2014 – the highest since 2008 – up from 3.7 percent the quarter before.
“Growth is vulnerable to setbacks if reform stalls,” the agency warned, noting, however, that “political stability has improved under President Sisi.”
According to Ibrahim Zahran, professor of economics at Cairo University, Fitch’s decision will help to increase the revenues of investment in the Egyptian markets in the light of reducing the hazards.
He hailed the upgrade as important since it came before a planned economic summit in Egypt in March 2015, saying that its positive impact will enhance the road for generating local and foreign investment.
The move will also reduce the cost of dealing with the foreign countries, either at the banking levels by reducing opening credits for exportation purposes, or at the government level in dealing with the international funding and financial institutions, Zahran said.
It will also boost the tourism movement and the foreign investment influx and contribute to increasing the country’s state resources of foreign currency, which in turn would stabilize the stock exchange, and enhance the Central Bank tools in controlling the markets and get rid of the parallel markets, he added.
Finance Minister Hany Kadry has welcomed the Fitch’s decision, considering it “a positive step in supporting Egypt’s economic program.”
Fitch group is a global leader in financial information services with operation in more than 30 countries.