Fitch Ratings raises Egypt’s financial outlook to ‘positive’

Fitch Ratings Inc., one of the three biggest credit rating agencies in the world, raised Egypt’s long-term Foreign-Currency Issuer Default Rating (IDR) from “stable” to “positive” in its latest report on the country.

The report, released on Tuesday, commends the Egyptian government for the economic reform implemented in 2017, saying it “remains on track” with the $12 billion three-year Extended Fund Facility (EFF), the loan Egypt agreed with the IMF in November 2016.

The report also says the Central Bank of Egypt’s exchange rate reform has proven to be a “turning point for the economy,” improving inflation and increasing macroeconomic stability.

But despite the positive notes, the report admits that public finances remains a “weakness” for Egypt.

However, Fitch Ratings also predicts that a decrease in government debt in the 2018 fiscal year, anticipating government debt as a percentage of GDP to fall to 93 percent by the end of the 2018 fiscal year, decreasing from its peak of 103 percent in the 2017 fiscal year.

By the end of the IMF program in 2019, Fitch Ratings expects government debt to slide to 88 percent of GDP.

The positive forecast continued throughout the report, as the agency anticipates an increase in Egypt’s international reserves, which climbed to a record high of $37 billion in December 2017, and they expect the current account deficit (CAD) to continue to decrease throughout 2018.

Furthermore, the massive Zohr gas field, which began its production in December 2017, was acknowledged by the report. “The Egyptian government estimates Egypt will no longer need to import gas from 2018,” due to its expected output.

Despite all the positives highlighted by the agency, some hurdles remained and prevented the country’s credit rating from rising to an ‘A’, from its current rating of ‘B’.

The report was unconvinced by Egypt’s governance, describing it as “relatively weak,” and highlighted “security and political risks” as some of the leading causes for Egypt’s non-improved credit rating.

It also flagged the “ongoing structural problems,” such as youth unemployment and security issues, particularly in North Sinai.

But the report appeared surprise that the reforms have not resulted in a social backlash, yet considers this due to the government “[restricting] the space for political opposition and freedom of expression.”

In its previous report, released in June 2017, Fitch rated Egypt’s credit score as ‘B’, but its outlook was “stable” rather than “positive.”

In June’s report, Fitch criticized Egypt’s substantial deficit, especially its government debt as a percentage of its GDP. Despite Egypt signing the IMF agreement, Fitch Ratings remained unconvinced about Egypt’s prospects.

Beyond Fitch Ratings, the World Bank also anticipates a positive financial forecast for Egypt.

In a report published on January 9, the World Bank stated it expects Egypt’s growth rate for the 2018 fiscal year to reach 4.5 percent, climbing from its 2017 fiscal year figure of 4.2 percent.

The report, titled ‘Global Economic Prospects 2018: Middle East & North Africa’, also expects Egypt’s growth rate to jump significantly to 5.9 percent in 2019.

Since 2016, Egypt has implemented sweeping economic policies as it seeks to push its economy beyond the stagnation it has suffered since 2011.

One of the most dramatic policies was the devaluation of the pound in November 2016, which Bloomberg’s Michael Cohen described as the “world’s deepest devaluation.”

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