International institutions recognise the improvements in the Egyptian economy brought about by recent government policies, reports Sherine Abdel-Razek The cabinet of Prime Minister Ahmed Nazif has been proud of the broad spectrum of reforms which it recently introduced into the local economy. However, it was a handful of international financial institutions which acknowledged these reforms over the past two weeks. Two credit rating agencies, Moody's and Fitch IBCA, along with three financial warehouses, JP Morgan, Standard Chartered and HSBC, have highlighted what they regard as a considerable improvement in the country's economic performance in recently-issued reports. The multiplying value of foreign direct investments which Egypt is attracting was highlighted by most of these agencies. FDIs rose from $2 billion in 2003/2004 to $3.9 in 2004/ 2005. They mounted to $3.3 billion in the first half of 2005/2006. JP Morgan expects the figure to rise to $5 billion for the whole year, because of an increasing foreign interest in the oil, tourism and real estate sectors which recorded a 12 per cent growth rate this year. JP also expected positive developments in the tourism sector. It predicted that this will be mainly driven by the rising rate of Arab investments in the sector, along with a revival in the numbers of Arabs coming to Egypt for tourism. The tourism influx will be propelled by an increase in the purchasing power of Arab tourists, because of sky-rocketting oil prices. JP placed tourism revenues in 2006 at $7.2 billion compared to $6.4 billion in 2005. HSBC's report, for its part, underscored the surpluses attained in both the balance of payments and the current account balance. HSBC said that the increase is a clear indication of Egypt's improved position in dealing with the world through trade and investments. According to HSBC, the rise in imports which almost doubled between 2002 and 2005 was offset by an increase in FDI. Another positive development was the increase in net foreign reserves which reached $23 billion. HSBC said that it expects the Egyptian economy competitiveness to increase because of the rise in GDP growth rates, more capital inflows and FDIs, as well as an improved monetary policy which was reflected in a more stable pound. The rise in energy prices worldwide, along with the 19 per cent hike in non-oil exports which occurred in 2005 will also help. The report interpreted the change in the structure of the country's imports towards more capital goods, at the expense of consumer commodities, as an indication of better production and hence increased competitiveness of the economy. Moody's upgraded its rating for the private sector's financing risks in a number of countries. It raised Egypt's evaluation by two points, from Ba1 to Baa2, assessing the outlook as stable in the long run. According to Moody's, the risks of financing the Egyptian private sector have decreased, implying that the latter can now borrow money from international markets at a lower cost. The evaluation given to Egypt regarding the private sector's financing risks exceeded those given to Jordan, Brazil, Turkey, Argentina, Columbia and Croatia. Another positive rating was given by Fitch IBCA which affirmed Egypt's foreign currency Issuer Default Rating ("IDR") at 'BB+' and its local currency IDR at 'BBB', both with Stable Outlooks. Issuer Default Ratings are relative measures of default probability. The rating agency also affirmed the short-term rating and the Country Ceiling at 'B' and 'BB+' respectively . While Fitch underscored as shortcomings the country's weak public finances, lack of data and political uncertainty, it hailed the "impressive progress on economic reform and a strong external position". Both Standard Chartered and Fitch praised the banking overhaul and privatisation programme for having succeeded in attracting more foreign investments.
