Capital Intelligence affirms Egypt’s sovereign ratings with stable outlook

Rating agency Capital Intelligence (CI) affirmed on Friday Egypt’s sovereign Short-Term Foreign Currency Rating (ST FCR) and Short-Term Local Currency Rating (ST LCR) at ‘B’, with a stable outlook.

It also affirmed the country’s Long-Term Foreign Currency Rating (LT FCR) and Long-Term Local Currency Rating (LT LCR) at ‘B+’.

The ratings reflect Egypt’s relative economic resilience and adequate level of foreign exchange reserves. It has been aided by the continued support of the International Monetary Fund (IMF) in countering the adverse impacts of the novel coronavirus (COVID-19) pandemic, CI said in a statement.

Moreover, CI added that the ratings are also supported by moderate external indebtedness and the government’s willingness to resume fiscal reforms.

CI further said foreign exchange (FX) reserves remain adequate, supported by international financial assistance and good access to international markets.

Egypt has maintained full access to the international markets during the pandemic, tapping the markets twice in 2020. The North African country raised about $5.75 billion through conventional Eurobonds and green bonds, with medium- and long-term maturities.

All the issues were oversubscribed, indicating favourable investor appetite, CI said.

Egypt’s sovereign spreads remained below their COVID-19 crisis peaks, albeit higher than those of some peers, it added.

Portfolio flows have also begun to recover, with net inflows reaching $9 billion in the first quarter of the financial year 2020/21, compared with net outflows of $15 billion in the fourth quarter of the financial year 2019/20.

The rating agency has also revised its real GDP growth projection for the financial year 2020/21 upwards to 2.8 percent, from the previous 2.5 percent, due to the relative strength of domestic consumption and government spending.

Real output is forecast to grow by 5 percent in the financial year 2021/22, fuelled by domestic demand, including business investment, and a recovery in net exports, CI said.

In addition, CI said inflation is expected to remain manageable in the financial year 2020/21, with CPI growing by 6.2 percent, compared to 5.7 percent in the financial year 2019/20.

Nevertheless, the budget deficit is expected to rise slightly to 8.1 percent of GDP in the financial year 2020/21, compared to 7.9 percent in the financial year 2019/20, CI noted.

This reflected higher social spending aimed at shoring up the economy from the ongoing impacts of the COVID-19 pandemic, it added.

Furthermore, the rating agency said the debt-GDP ratio is seen to inch up to around 96.9 percent in the financial year 2020/21, compared to 87.9 percent in the financial year 2019/20, exacerbated by lower nominal GDP growth and higher borrowing.

The stable outlook for the ratings indicates that Egypt’s sovereign ratings are expected to remain unchanged over the next 12 months, CI statement read.

The outlook balances CI’s current forecast that reforms and international assistance will contribute to further improving Egypt’s fiscal and external position over this period.

The outlook could be revised to “positive” in a year’s time if Egypt manages to reduce government debt further than expected and/or if the government introduces widespread structural reforms. These would need to reduce socioeconomic vulnerabilities, promote private sector participation, and enhance inclusive growth, CI statement concluded.