S&P Global affirms Egypt’s B rating on exchange rate flexibility, IMF, GCC support

S&P Global Ratings has affirmed on Friday Egypt’s credit rating at B with a stable outlook buoyed by he latest financial support from the International Monetary Fund (IMF) and Arab gulf partners.

The rating agency said the latest financial support from the IMF and Arab gulf partners will help the country meet its external funding needs sitting at around $17 billion for the financial year 2022-2023. It also commended the Egyptian government’s commitment to reform and the country’s solid growth prospects.

S&P’s stable outlook also assumes that Egypt’s inflation will progressively subside and that the Central Bank of Egypt (CBE) will remain committed to maintaining a flexible exchange rate regime.

The rating agency also expected that gross government external borrowing will record to $10 billion during the 2022-2023 year with the bulk coming from multilateral and bilateral lenders.

By the end of June, Egypt is expected to have secured $3.7 billion in net external loans from the international bond market, including Eurobonds. S&P expects the country’s GCC allies to cover the remainder in its external gap. The UAE, Saudi Arabia, and Qatar have together pledged more than $22 billion to help Egypt weather the implications of the Russian war in Ukraine.

“The ongoing exchange-rate adjustment suggests that Egypt is committed to implementing the conditionality of the IMF programme,” the rating agency report read.

Following the most recent depreciation of the Egyptian pound against the dollar, S&P expects “confidence in the currency’s short-term price to improve, and for the private sector, banks and businesses to increase trade in USD.”

The rating agency also expects Egypt’s economy will be growing 4 percent in the short term, saying construction, energy, IT and communications, wholesale and retail, agriculture, and health sectors will drive growth.

Egypt’s current account deficit is expected to narrow by 20 percent to $13 billion in the 2022-2023 year, down from $17 billion, while remaining unchanged as a share of GDP due to the depreciation of the pound currency. The rating agency also forecasts “import prices to moderate, while export volumes and remittances from Egyptians living abroad remain robust.”

The budget deficit is set to remain high at around 7 percent of GDP over the next three years, the rating agency added, raising its forecast by a full percentage point from its last report in October.

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