Moody’s Investors Service has today (October 20) changed Egypt’s outlook to stable from negative and affirmed its Caa1 government bond rating.
Key drivers for the outlook change to stable from negative are the stabilised political and security situation, 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.
However, Egypt’s Caa1 government bond rating remains primarily constrained by high fiscal deficits, high government debt, very large fiscal borrowing needs and continued challenges hindering the recovery of economic growth in the post-revolutionary political and economic environment.
Moody’s has today also affirmed the Aaa rating of Egypt’s backed global bond. Egypt’s B3 foreign-currency bond ceiling, Caa2 foreign-currency deposit ceiling and Ba3 local-currency country risk ceilings are unaffected by today’s rating affirmation. The short-term country ceilings for foreign-currency bonds and deposits remain unaffected at Not-Prime (NP).
The outlook change to stable from negative reflects our expectations of an improving fiscal and economic environment, building on a number of developments over the past year that reduce downside risks to the rating.
The domestic political and security situation has improved, following the constitutional referendum on 14-15 January 2014, which formed the first step in the political reform roadmap and led to greater institutional stability. This was followed by presidential elections in May 2014, with parliamentary elections likely to be held by early 2015.
With the exception of an attack on a Korean tourist group in February 2014, there have been no terrorist assaults on foreign visitors. Most of the violence stems from small-scale attacks on Egypt’s security forces, outside the traditional tourist areas.
Coinciding with the stabilizing security situation, the government launched several fiscal and economic reforms over the past year. In July, authorities adjusted administered fuel prices, and unveiled plans to phase out fuel and electricity subsidies over the next five years. The government is also working on revenue-enhancing measures, including a shift from the current goods and services tax to a value-added tax system.