Egypt’s weak government finances remain key hurdle in reform momentum — Moody’s

Moody’s estimates that the general government primary deficit has been cut to 1.8 percent of GDP in fiscal year 2017. Above, An Egyptian woman holds her money in her mouth at a market in Cairo. (Reuters)

DUBAI: Egypt’s government financial position remains a key hurdle in the country’s reform momentum, ratings agency Moody’s Investors Service said in an annual report on Wednesday.
Egypt’s credit profile – at B3 stable – reflects its large and diversified economy and strong reform momentum, set against constraints which include its very weak government finances, the ratings agency said.
“Any signs of reform slowdown would jeopardize the stable outlook. Depending on the form and speed of reversals and the implications for government finances and external liquidity this could even lead to downward credit pressure,” Moody’s said.
Moody’s estimates that Egypt’s general government primary deficit has been cut to 1.8 percent of GDP in fiscal year 2017, which ended on June 30, from 3.7 percent the year before and will start to show small surpluses from 2019.
For the fiscal year 2018, the ratings agency said the deficit would be at 10 percent of the GDP, slightly higher than the projected 9.2 percent but down from an estimated 12.1 percent in 2016.
“Although Egypt’s economic growth is still below pre-revolution levels, it has started to pick up, and investor sentiment has also improved on the back of strengthened reform momentum,” said Steffen Dyck, a Moody’s Vice President – Senior Credit Officer and co-author of the report. “We also expect that Egypt’s high fiscal deficits and government debt levels will gradually reduce.”
Preliminary official figures suggest real GDP growth of 4.2 percent in 2017, and Moody’s expects a further acceleration to 5.0 percent in 2019, supported by the government’s structural reforms, Moody’s noted.
Egypt’s implementation of economic and fiscal reforms underscored the government’s effectiveness and policy predictability, inasmuch as risks to policy-making have been greatly reduced since last year due to better inter-agency cooperation.
Positive pressure on the rating would stem from faster-than-expected progress on the government’s reform program, more rapid fiscal consolidation and improvements in debt metrics, Moody’s said.