Moody’s affirms Egypt’s credit rating, gives stable outlook

Monetary tightening in response to rapidly rising inflation has driven up the government’s domestic funding costs, Moody’s said. (Reuters)

DUBAI: Moody’s Investors Service has affirmed Egypt’s long-term issuer and senior unsecured bond ratings at B3, six levels below investment grade, and kept its stable outlook for the country.
Very weak government finances will continue to constrain the rating pending further clarity on the sustainability and impact of the reform program, Moody’s said, noting that the country’s international reserves has been driven mainly by debt-creating inflows.
Egypt has raised $7 billion (SR26.25 billion) from the sale of Eurobonds in the fiscal year that ended in June, including $4 billion in January consisting of five, 10 and 30-year bonds with yields of 6.125 percent, 7.5 percent and 8.5 percent, respectively.
IMF is due to disburse the second $4 billion installment of its $12 billion facility for Egypt, while World Bank is set to release the last $1 billion of the three-year loan it granted to Cairo. The nation is also expecting to receive the last $500 million from its African Development Bank loan.
“Moody’s expects Egypt’s credit profile to remain heavily influenced by the government’s very weak government finances for a sustained period, with already high fiscal deficits continuing to grow in nominal terms over the coming years and declining only gradually as a percentage of GDP,” the ratings agency said.
“As a consequence, Egypt’s government financial strength will remain very weak for the foreseeable future, with debt and debt affordability metrics continuing to exceed by some margin the median for B3-rated sovereigns.”
Egypt plans to again tap the global debt markets in January to raise as much as $4 billion to help plug its budget deficit, which is now about 11 percent of GDP as of end June.
Moody’s likewise cautioned that any sign of a slowdown in Egypt’s reform program, which would have implications for government finances and external liquidity, could jeopardize its rating and outlook for the country.
“Renewed social and political instability or a material deterioration in the security situation could also lead to a negative rating action,” the agency said.