FITCH Ratings has revised the outlook on Egypt's long-term foreign currency Issuer Default Rating (IDR) to positive from stable and affirmed the IDR at B. The revision comes on the back of progress on the government's commitment to reform in 2017. Egypt embarked on an IMF-backed reform programme in 2016 with the support of a $12 billion three-year Extended Fund Facility (EFF). “Fiscal consolidation is proceeding, although it will require a multi-year effort to reverse the increase in general government debt/GDP witnessed since the Arab Spring uprisings,” Fitch said in a statement. The Central Bank of Egypt's (CBE) exchange rate reform has proved a turning point for the economy and Egypt's external finances and macroeconomic stability have started to improve following an inflationary spike.” Public finances will remain a major weakness of Egypt's credit profile, the credit rating agency said, adding, however, that it expects continued fiscal consolidation to start reducing government debt to GDP in fiscal year 2018. “We forecast the budget sector deficit to narrow again in fiscal year 2018, to 9.7 per cent,” the agency said, adding that it expects Egypt to achieve a primary surplus in fiscal year 2019 for the first time in more than 15 years. Primary surplus refers to government revenues minus expenditure before debt service. Fitch cited that the general government primary deficit was halved to 2.6 per cent of GDP in FY17 from 5.3 per cent of GDP in FY16. The rating agency also forecast general government debt to GDP to fall to 93 per cent in FY18 from a peak of 103 per cent in FY17. “By the end of FY19, which is likely to also mark the end of the current IMF programme, we forecast general government debt to GDP to have fallen to 88 per cent. The key risk to this outlook is that reform momentum weakens.” Fitch lauded the improvement of macroeconomic stability from a fragile state. It said “high inflation will remain a rating weakness, but the inflationary spike following the exchange rate depreciation and fiscal reforms is starting to subside.” Egypt's monthly inflation rate witnessed negative growth for the first time in 24 months, coming at 26.1 per cent in December, down from 33 per cent in July. The agency expects inflation to average around 13-14 per cent in 2018, ending the year within the CBE's inflation target of 13 per cent (plus or minus three per cent). The agency, however, said that “relatively weak governance together with security and political risks continue to weigh on the rating.” The agency said that among the factors that could individually or collectively lead to negative rating include the failure to narrow the fiscal deficit and put government debt/GDP on a downward path, the reversal of fiscal and/or monetary reforms, for example in the face of social unrest, and renewed downward pressure on international reserves due to strains on the balance of payments. Meanwhile Moody's credit rating left Egypt's long-term issuer and senior unsecured bond ratings at B3, maintaining a stable outlook unchanged at August 2017. The country's high debt level was the main reason behind the unchanged rating. Moody's expected Egypt's GDP growth to accelerate to around 5 percent by 2019 and 5.5 percent by 2021, up from 4.2 percent in 2017. Moody's forecast was part of the agency's announcement of a stable outlook for the Levant and North Africa in 2018.
