International rating agency Moody's Tuesday has upgraded Egypt's issuer and senior unsecured bond ratings to B3 from Caa1, with a stable outlook.
The agency said in a statement that the first driver of Tuesday's rating action is the expectation that recent improvements in Egypt's growth performance and macroeconomic stability will be enduring.
Moody's also expects real GDP growth in Egypt to recover to 4.5% year-on-year for the current fiscal year 2015, which ends in June, and then to rise to around 5%-6% over the coming four years.
This expected level is based on an assumption that domestic political stability will continue, as will improvements in the business environment, which in Moody's view will be conducive to higher investment levels Moody's said.
Moody's expectation of a recovery in domestic and foreign investment is underscored by the strong donor support in Egypt's Economic Development Conference, which was held during March 13-15 in Sharm El-Sheikh.
The support came predominantly but not exclusively from Gulf Cooperation Council (GCC) member countries, which pledged a total of US$12.5 billion in official aid and investments. Together with the approximately $38 billion in reported signed investment deals, the large amount of financial support will help to mitigate external vulnerabilities and reduce balance-of-payments risks.
Finally, Moody's expects the Egyptian government to carry on with fiscal and economic reforms.
Expenditure-side reforms, such as recalibration of subsidies and putting a lid on public sector salary growth, coupled with revenue-enhancing measures such as the likely introduction of a full-fledged value added tax in the coming fiscal year, will help to gradually reduce fiscal deficits. The rating agency expects the general government deficit to decline to around 10% of GDP in fiscal 2015, and edge down further to around 9.3% by 2016.
Moody's also projects general government debt to decline gradually to less than 90% of GDP during 2015-16. In addition, lower government borrowing costs on the back of declining inflation rates, and maturity lengthening measures, will help to reduce Egypt's very large government borrowing requirements.