Fitch improves Egypt’s credit rating to B+

Fitch upgrades Egypt’s credit rating to B+ testifies to the Egyptian government, testifies Egyptian government’s success in implementing its comprehensive economic reform program, Egyptian Finance Minister Mohamed Maait said.

The upgrade will certainly help increase confidence in the Egyptian economy, lure more foreign investments and cut down on financing costs, Maait said in statements following the globally-recognised credit rating agency’s decision.

Earlier in the day, Fitch upgraded Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B+’ from ‘B’.

This is the fifth positive review issued by international rating institutions since the application of Egypt’s economic reform programme in 2016.

The minister said the new upgrade reflects international institutions’ awareness of the Egyptian government’s seriousness in carrying out this programme.

In its report, Fitch said that Egypt has made further progress in implementing economic and fiscal reforms, which are driving improved macroeconomic stability, fiscal consolidation and stronger external finances.

It believes that Egyptian reforms will continue to generate better economic outcomes beyond the IMF agreement.

The agency said that general government debt/GDP is on a downward path, underpinned by structural improvements to the budget and the emergence of primary budget surpluses.

“We expect spending on wages, subsidies and interest to fall by almost 5 percent of GDP from June 2016 to June 2020,” the report said.

Monetary policy is targeting single-digit inflation and international reserves have risen to six months of current external payments.

“We expect the budget sector deficit to narrow to around 8.6 percent of GDP in FY19 (fiscal year ending June 2019), with a primary surplus of 1.6 percent of GDP, close to the government target of 2 percent of GDP,” it added.

“In 1HFY19 (July-December 2018) spending on subsidies and social benefits was flat in nominal terms. We expect subsidies and social benefits spending to fall by 1.1 percent of GDP in FY19. Interest spending continued to limit consolidation, but was in line with budgeted amounts. Overall, revenue grew by 28 percent yoy and expenditure by 17 percent yoy.”

According to the report, macroeconomic stability has improved, with stronger growth and disinflation. It said that average consumer price inflation dropped to 14.4 percent yoy in 2018 from almost 30 percent in 2017, following sharp depreciation of the Egyptian pound in November 2016.

But the report cited some challenges that are still facing the Egyptian government, including the continuation of targeted reforms to decrease public debt and increase foreign cash reserves.