RIYADH: As Egypt’s asset sales have been slower than anticipated, the pressure on currency depreciation will continue due to a drawdown in foreign exchange liquidity, said Moody’s Investors Service in its latest note.
Egypt’s decline in foreign exchange liquidity carried on through January and February of 2023 after the nation reversed course at the end of last year. As a result, the country’s debt affordability and debt sustainability profile became more at risk.
Egypt’s “B3 stable” asset sale strategy, which aimed to close its funding gap mostly through selling state-owned assets, has progressed slower than expected, stated the global rating agency.
This strategy is crucial for the $3 billion 46-month International Monetary Fund extended arrangement that Egypt reached last December to enhance its foreign currency liquidity.
The IMF has called for a $6 billion increase in the Egyptian economy’s net international reserves between March and June of this year, elevating it to $23 billion from $17 billion, as per its quantitative performance criteria.
To determine the net international reserves, the central bank’s net foreign liability position, which was around $9 billion as of March, was subtracted from the economy’s liquid foreign currency reserves, which were $26.5 billion at the time, Moody’s added.
It stated: “The targeted adjustment under the IMF program is thus equivalent to a reversal in the central bank's net foreign liability position by $6 billion over the next three months, reducing it to about $3 billion by June.”
Egypt’s external liquidity will continue to be hindered by the central bank’s failure to strengthen its net foreign debt position and liquid foreign exchange reserves, noted the agency.
According to the government’s targets, asset sales are to raise $2 billion by the end of this fiscal year in June 2023, and another $4.6 billion in fiscal 2024.
However, progress has been slow due to predictions of further devaluation of the Egyptian pound, signs of opposition from vested interests, as well as Gulf Cooperation Council investors attaching more onerous conditions for future financial support.
