International rating agency Moody's has changed Egypt's outlook from negative to stable, attributing the upgrade to the stabilised political and security situation. The agency said "the launch of government initiatives toward fiscal consolidation, signs of a growth recovery and an improvement in macroeconomic stability, and strong support from external donors" also attributed to this improvement. The rating agency stated that the confidence of the domestic investors in the economic recovery is starting to show. "External financial support, predominantly from Gulf Cooperation Council member states, continues to bolster external liquidity, supporting Egypt's budget and lowering the government's financing costs," Moody's said, stating that Gulf's commitment is expected to continue. The high fiscal deficits and government debt, as well as the "very large" fiscal borrowing needs, led Moody's to affirm the government bonding rating at Caa1, however. "The affirmation of the Caa1 rating reflects the very weak and challenging state of Egypt's government finances. Budget deficits remain wide, at more than 10% of GDP," Moody's said. "Government expenditure is marked by a very high share of recurrent spending, which limits room for public investment." Explaining what may lead to a future downgrade in the country's economic outlook, Moody's indicated that political turmoil and instability can be a factor. It added that instability in the banking system, a sharp rise in the government's funding costs and a notable decline in the external payments position may also result in a downgrade. On what may push the outlook up, Moody's noted that more economic stability, lowering of the fiscal deficit and stabilisation of the government's debt will be considered an improvement. On 31 January 2011, Moody's downgraded the government bond rating for Egypt from BA2 to BA1, and changed the outlook from stable to negative. Later in March, the agency downgraded the foreign and local currency government bond ratings by one notch to Ba3 from Ba2 while the outlook remained negative. In October 2011, the government bond rating was downgraded by one notch to B1 from Ba3, and in December the rating further declined to B2. In February 2013, the rating witnessed another decline from B2 to B3 with the last downgrade, to Caa1, occurring in March 2013. The agency expected Egypt's GDP to surge minimally in 2015, registering 3.5%, highlighting that the "outlook for the economic growth remains weaker than pre-revolution".
