Mega projects are one avenue to boost growth in Egypt: Standard and Poor's

Egyptian deficits still remain high when compared to other countries at similar rating levels

In an interview with Daily New Egypt, Director of Sovereign and International Public Finance Ratings at Standard and Poor's Rating Services, Ravi Bhatia, discussed the Egyptian economy's current status. He shed light on the institution's views on the investment opportunities and mega projects available in the country, as well as the effects of terrorist acts on ratings.
How do you view Egypt's economic current position? And what are the challenges that face the economy?

The Egyptian economy is recovering gradually after having suffered during the political crisis. Egypt faces the twin challenges of trying to accelerate growth, as well as contain and finance its large fiscal and sizable external deficits.

What is your opinion on the investment opportunities in Egypt now?
Given the improved security situation, after several years of turmoil, foreign and local investors are once again looking at the market and various investment opportunities.

What is your opinion of the mega projects that Egypt seeks to fund? Will they affect positively on the ratings of the country?
Mega projects are one avenue that Egypt can use to boost growth.
Our ratings look at a number of factors including institutional strength, GDP per capita, GDP growth rates, fiscal, debt, external indicators and monetary policy. Growth is one factor we consider.

How does the institution see the recent terrorism incidents that occurred and their affects on the ratings?
The maintenance of peace and security is one aspect of our institutional strength assessment. Recent terrorist attacks are a concern that we are monitoring.

How does the institution view the new 2015-2016 public budget targets (the deficit was estimated at EGP 251bn or 8.9% from GDP, and revenues at EGP 868bn)? Are they realistic?

Given Egypt's very high debt levels, controlling fiscal deficits is very important, and Egyptian deficits still remain high when compared to other countries at similar rating levels. Efforts to cut subsidies etc. have not led to significant reductions in deficit numbers. In addition, there is concern over the new constitutionally mandated expenditures on health, education and scientific research.

How do you see the level of unemployment in Egypt (13.1% from the total labour force)?
Unemployment in Egypt is high; a reduction in the level of unemployment would undoubtedly contribute to GDP growth rates and productivity.

How do you see the management of the fiscal policy in our country?
Egypt's fiscal deficits and debt stocks still remain high compared to peers.

What are the challenges of financing projects in Egypt?
The projects have to be profitable on a stand-alone basis for investors to be interested. Viable projects are likely to attract investment against a backdrop of political stability and a general growth environment.

How do you see the shortage of foreign currency in the country? And how does the shortage affect ratings?
External financing is one aspect in our criteria that we look at. Egypt has benefitted from significant foreign exchange inflows from Gulf countries. We believe that Gulf countries will continue this foreign exchange financing.

What is the institution's opinion of the new Suez Canal project in Egypt, and will it positively increase the ratings of the country in an indirect way?

The project, if managed in a financially sustainable manner, should help GDP growth, and GDP growth is one aspect in our criteria that we look at.