Abu Dhabi, UAETuesday 23 July 2019

Fitch upgrades Egypt to B+ on the back of economic reforms

The agency keeps outlook stable but says the state is still under risk from poor governance

Egypt has put its economy on the path of recovery by devaluing the pound and undertaking significant economic reforms as part of a $12 billion IMF-backed loan package. AP Photo
Egypt has put its economy on the path of recovery by devaluing the pound and undertaking significant economic reforms as part of a $12 billion IMF-backed loan package. AP Photo

Ratings agency Fitch upgraded Egypt to B+ and certified its outlook as stable, citing the North African state's recent efforts at pushing for economic reforms.

Egypt's ratings upgrade comes amid a healthy economic growth environment, where gross domestic product is poised to grow at 5.5 per cent in 2019, up from an expected 5.3 per cent in 2018 and 4.2 per cent in 2017, according to projections from the International Monetary Fund. The growth rates are one of the fastest in the Middle East and North Africa, and are a reflection of Egypt's economic revival after years of instability.

"Egypt has made further progress in implementing economic and fiscal reforms, which are driving improved macroeconomic stability, fiscal consolidation and stronger external finances," the agency said in its latest review.

"General government debt/GDP is on a downward path, underpinned by structural improvements to the budget and the emergence of primary budget surpluses," Fitch said.

Egypt, North Africa’s largest economy, suffered major setbacks as a result of political turmoil after the Arab uprisings in 2011. Economy lost growth momentum, capital outflows increased and there was high inflation.

To reverse years of decline, the country has undertaken economic reforms.

Fitch expects Egypt's budget sector deficit to narrow to around 8.6 per cent of the GDP during the fiscal year ending in June, with primary surplus rising to 1.6 per cent of GDP. The government targets 2 per cent surplus, a figure the IMF said it could likely achieve.

Fitch said there was "political commitment" for further fiscal consolidation with ongoing structural improvements in the budget likely to persist.

Egypt has put its economy on the path of recovery by devaluing the pound and undertaking reforms as required under the $12 billion loan package from the IMF. The country has also launched two licensing rounds for oil and gas and aims to become a net gas exporter in the Eastern Mediterranean.

Fitch said Egypt's macroeconomic stability had improved with stronger growth and disinflation. Consumer price inflation dropped to 14.4 per cent year on year in 2018 from almost 30 per cent in 2017 following the floatation of the pound.

The agency said, however, that weak governance together with security and political risks continued to weigh on Egypt's ratings. It urged the government to mitigate risks of discontent by "bolstering social safety nets", maintaining food subsidies and boosting electricity provision.

Updated: March 23, 2019 05:13 PM

SHARE

SHARE