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Fitch affirms Egypt's long-term foreign currency issuer default rating at B+
Published in Amwal Al Ghad on 24 - 10 - 2021

Fitch Ratings has on Wednesday affirmed Egypt's Long-term foreign currency Issuer Default Rating (IDR) at 'B+' with a stable outlook.
The rating is buoyed by Egypt's "recent track record of fiscal and economic reforms," coupled with its large economy, which has remained stable and resilient through the global health crisis, as "continued economic growth and a modest coronavirus support package limit the pandemic's impact on Egypt's public finances."
Weighing on Fitch's rating is the country's "still-large fiscal deficits, high government debt-to-GDP and domestic and regional security and political risks."
The rating agency expects the country's fiscal deficit to narrow by the end of the financial year 2021-2022 with government tax revenues rising.
The introduction of the new Customs Law and the modernisation of the tax system through the digital tax platform will help the Egyptian government increase tax revenue-to-GDP by two percentage points over the next four years.
The deficit is expected to have widened to 7.5 percent of GDP during the previous financial year from 7.0 percent in the financial year 2019-2020 and 7.9 percent in the financial year 2018-2019.
According to Fitch, the government debt levels remain a "core weakness" but debt-to-GDP will begin to fall during the current financial year. Debt grew from 84 percent of GDP in the financial year 2018-2019 to an estimated 88 percent in the 2019-2020 year and the 2020-2021 year, but is projected to fall back to 86 percent by the end of this year in June 2022 due to accelerating growth and continued primary surpluses.
Egypt's GDP "outperformed the vast majority of Fitch-rated sovereigns throughout the coronavirus pandemic," on the back of domestic demand, natural gas production and new public-sector investment amid declining tourism and export revenues, the rating agency said.
Private sector credit growth, which rose from 20 percent in the financial year 2019-2020 to 21 percent in the 2020-2021 year, also helped bolster economic growth.
Real GDP is expected to increase to 5.5 percent by the 2022-2023 year as global economic and travel conditions normalise from the pandemic.
Fitch further said one of the biggest threats to Egypt's fiscal stability; changing global monetary conditions.
In September, foreign holdings of government debt reached nearly $34 billion, having grown from less than $10 billion in the wake of the pandemic market crash. However, Fitch warns that inflows "could reverse in response to any confidence shock or shift in global liquidity conditions, putting pressure on foreign exchange liquidity, interest rates and the exchange rate."
On the plus side, Egypt's inclusion in the JP Morgan's GBI index for emerging markets starting January 2022 and the settlement of Egyptian bonds by Euroclear, which is expected to take place later in 2022, will both provide "some structural support" to foreign demand for EGP bonds.

Egyptian Finance Minister Mohamed Maait has estimated that inclusion in the JP Morgan index will result in passive inflows of about $1 billion.

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