IMF 2nd loan tranche approval credit positive: Moody’s

CAIRO – 20 July 2017: Moody's Investors Service said that the International Monetary Fund (IMF) review of Egypt’s Economic Reform Program is credit positive, for indicating the progress in implementing reforms that will help reduce the nation’s fiscal and external vulnerabilities.

Last Thursday, the IMF's Executive Board completed the first review of Egypt’s economic reform program supported by an arrangement under the Extended Fund Facility (EFF).

Following the review, the fund approved the disbursement of the second tranche worth $1.25 billion of Egypt's $12 billion loan, bringing the total amount disbursed so far to $3.95 billion.

Moody’s added that the Egyptian reforms are showing positive results; particularly, foreign exchange rate flotation announced in November 2016 helped “reduce balance-of-payment pressures from large current-account deficits and support the sovereign’s external liquidity position.”

Following the liberalization, the Egyptian pound depreciated by around 50 percent, which practically eliminated the parallel foreign exchange market.

“The pound’s 50 percent depreciation since late 2016 has led to higher import prices for food and energy products, which made it more difficult for the government to achieve the agreed fiscal targets under the IMF program,” Moody’s reported.

Consequently, the current account deficit has stabilized at 6.5 percent of gross domestic product (GDP) as measured on a four-quarter moving-sum basis, in line with our expectation for fiscal 2017, which ended June 30, the report said.

The global rating agency expected the deficit to shrink gradually to 3 percent of GDP by the end of 2020, supported also by a pick-up in exports.

The Central Bank of Egypt’s (CBE) net foreign reserves amounted to $31.3 billion by the end of June compared to $17.5 billion a year earlier, as a result for the Egyptian pound flotation and higher foreign investment.

“We forecast a gradual narrowing of Egypt’s general government fiscal deficit to about 9.5 percent of GDP by the end of this fiscal year from around 11 percent in fiscal 2017, and an improvement in the debt/GDP ratio to 86.5 percent from 95 percent over the same period,” according to Moody’s.