Egypt’s credit outlook upgraded to positive by S&P amidst foreign investments

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S&P Global Ratings upgraded Egypt’s credit outlook from stable to positive on March 19. The upgrade in outlook affirms the country’s long- and short-term local and foreign currencies credit ratings at “B-/B,” according to a statement by the ratings agency.

The agency highlighted Egypt’s commitment to exchange rate liberalisation combined with budgetary consolidation targets as crucial for boosting international confidence in the economy.

In a statement, the agency said, “We see the exchange rate liberalisation, alongside Egypt’s stated commitment to stick to ambitious budgetary consolidation targets, as a key step in shoring up confidence and growth in Egypt’s economy and its debt sustainability.”

Egypt economic outlook

The positive outlook reflects potential further improvements in Egypt’s external situation and efforts to mitigate the foreign currency shortfall. Market-driven foreign exchange rates are expected to stimulate gross domestic product (GDP) growth and support the government’s fiscal consolidation plan over time.

Despite projecting a weakening economic growth to about 3 per cent in 2024 due to limited foreign currency liquidity, high inflation, and tight monetary policy, S&P said it anticipates a rebound in the African country’s GDP growth starting 2025.

The forecast also indicates a shrinkage in Egypt’s current account deficit until 2027. However, the government deficit for 2024 is expected to increase primarily due to higher debt servicing costs. Inflationary pressures are predicted to remain high initially but moderate over the period until 2027.

This positive rating adjustment comes as Egypt demonstrates its ability to meet financial obligations amid ongoing uncertainties.

IMF, UAE deals

In recent developments that impacted the ratings are the International Monetary Fund (IMF)’s deal with Egypt which expanded its support programme from $3bn to $8bn. Additionally, Egypt secured a $35bn investment from the UAE in February to develop its Mediterranean coast, with plans to attract up to $150bn in investments.

In a recent conversation with Gulf Business, EFG Hermes‘ deputy head of Research, Hatem Alaa had summarised the country’s outlook as moving toward positive. He said, “Egypt has seen a challenging few years. However, the recent deal from ADQ investing $35bn in a development in Ras El-Hekma on the north coast is expected to be a big game changer. It resolves the country’s economic issues particularly when it comes to foreign exchange.”

“A big problem with Egypt in the last few years was that there was a big deviation between the official rate and the black market rate for the currency. That’s come down a lot.”

He added, “We’re seeing foreign exchange backlogs being gradually cleared. I think Egypt is going to start to see foreign interests come back slowly. On the fixed income first and then probably on the equity side.”

“Egypt is at the cusp of a solution to its problems and it would be an interesting one to watch.”

Furthermore, Egypt will receive EUR7.4bn ($8bn) in aid from the EU to support its economy until 2027, amidst ongoing conflicts in Gaza and Sudan.

Read: Egypt secures EUR7.4bn aid package from the EU