:New York 20 Feb 2025:
— Moody’s Ratings (Moody’s) has today affirmed the Government of Egypt’s Caa1 long-term foreign and local currency issuer ratings and maintained the positive outlook. We have concurrently affirmed Egypt’s foreign-currency senior unsecured ratings at Caa1, and its foreign-currency senior unsecured MTN program rating at (P)Caa1.
The positive outlook, in place since March 2024, continues to reflect the prospects for an improvement in Egypt’s debt service burden and external profile.
As expected at the time of our last rating action, progress in external and fiscal rebalancing has been made.
With the devaluation and flotation of the currency, Egypt has now stronger foreign exchange buffers, and borrowing costs have started to decline.
Additionally, monetary policy credibility and effectiveness is increasing as the central bank maintains a policy stance consistent with inflation targeting and a floating exchange rate regime.
This should allow policy rates to decline, bringing further relief on the cost of debt, while maintaining an environment favorable to steady foreign-currency inflows. The government’s efforts toward fiscal consolidation and enhancing tax revenues are also underway, aiming to achieve primary surpluses of 3.5% of GDP.
However, credit vulnerabilities reflected in the Caa1 ratings continue to pose risk to Egypt achieving durable improvements in fiscal and external positions.
Egypt’s high, albeit declining, debt ratio, very weak debt affordability compared to peers, and its persistently large domestic and external financing needs constrain the credit profile. These constraints raise the economy’s susceptibility to capital outflows in case of external shocks that could challenge the authorities’ commitment to a floating exchange rate policy, which in turn could result in the reemergence of external imbalances and erosion of foreign-currency buffers. This vulnerability is further compounded by ongoing risks to fiscal consolidation and sustained improvements in debt and debt affordability taking into account large contingent liabilities in the public sector and very limited fiscal room to meet social spending needs while maintaining primary surpluses.
We have affirmed the backed senior unsecured ratings of the Egyptian Financial Corporation for Sovereign Taskeek sukuk company at Caa1 and its program rating at (P)Caa1 which are, in our view, ultimately the obligation of the Government of Egypt. We have concurrently maintained the positive outlook to the Egyptian Financial Corporation for Sovereign Taskeek sukuk company, mirroring the positive outlook on the Government of Egypt.
The local-currency ceiling is unchanged at B1, and the foreign-currency ceiling at B3. The three notch gap between the local-currency ceiling and the sovereign rating reflects a large and diversified economy with a large public sector footprint that inhibits private sector development and credit allocation amid nascent reforms to level the playing field with public sector entities.
The two-notch gap between the foreign currency and local currency ceiling reflects transfer and convertibility risks given persistently large foreign currency financing needs and risks of capital flight.
