FX Reserves A Concern For Egypt Rating -Fitch Analyst

Egypt’s low level of foreign exchange reserves is a key issue for its rating, which is on negative outlook, a senior Fitch ratings analyst said on Tuesday.

“The key thing is … the reserves chart,” Paul Gamble, director, sovereigns at Fitch, told a briefing in answer to a question on risks to the rating.

“If we don’t see sufficient inflows coming in, if we see reserves falling over a sustained period and we don’t have visibility on inflows, we would look at the rating again.”

Fitch cut Egypt’s rating to B with a negative outlook in January. It has the country on a higher rating level than other ratings agencies, though its rating is still below investment grade.

Standard & Poor’s cut Egypt to CCC+ earlier this month, while Moody’s also has Egypt on a Caa1 rating, deep in junk territory.

Egypt’s foreign exchange reserves rose to $14.4 billion in May, but are still below the $15 billion level economists say is needed to cover three months’ worth of imports. Reserves have slumped since the revolution that toppled president Hosni Mubarak in 2011 due to falling revenues from tourism and foreign investment.

Richard Fox, head of Middle East and Africa sovereigns at Fitch, said regulatory changes meant the agency would start to review its ratings twice a year, rather than once.

“We will have to review Egypt’s rating in the second half of the year,” he said.

Gamble said that Egypt’s external debt position was a key support for the rating.

“We are very comfortable with Egypt’s ability and willingness to honour external debt commitments,” he said.

 Reuters