Capital Intelligence Ratings (CI Ratings) lowered Egypt’s long-term foreign currency rating and long-term local currency rating to ‘B’ from ‘B+’. CI Ratings also maintained Egypt’s short-term debt rating at “B” and revised from its outlook on the long-term foreign currency rating and local currency rating from negative to stable.
CI Rating’s outlook could be revised to positive in a year’s time if “Egypt manages to lower its external financing risks by building up a comfortable level of foreign exchange reserves, supported by a credible exchange rate regime,” the report states.
According to the CI Ratings report, the downgrade “reflects the increase in Egypt’s external financing risks due to the country’s high external financing needs and risks to the sufficiency and timeliness of financing inflows. This uncertainty is a result of the reform-dependent nature of much of the external funding targeted by the authorities, as well as more challenging and costly capital market access.”
CI also stated in its report that the pace of Egypt’s reform implementation has been modest and additional delays in accelerating efforts to strengthen exchange rate credibility and privatize government- and military-owned assets will weigh further on investor confidence.
The report also identified that the stable outlook indicates that the ratings are likely to remain unchanged over the next 12 months. The outlook balances Egypt’s large external financing needs with our assumption that continued asset sales and a narrower current account deficit will help to gradually strengthen the country’s foreign reserve buffer.
“The ratings could be upgraded if the government successfully implements durable structural and fiscal reforms which stabilize the economy, reduce its vulnerability to external shocks, and address socio-economic vulnerabilities,” CI Ratings stated in its report.