CAIRO - 18 March 2024: S&P Global Ratings agency (previously Standard & Poor's) upgraded its outlook on Egypt to positive from stable, maintaining Egypt's debt rating at "B-/B," according to a statement released by the agency.
These changes in the global agency's view of the Egyptian economy come after Cairo secured a $35 billion investment from the United Arab Emirates (UAE), adding to a string of international commitments and financing exceeding $50 billion.
The funds acquired by Egypt, expected to be obtained in the coming years, have facilitated the implementation of the highest interest rate hike ever and the fourth currency devaluation since early 2022.
On February, Egypt signed a deal with the Abu Dhabi Developmental Holding Company PJSC (ADQ) - the sovereign wealth fund of the Emirate of Abu Dhabi - to develop the Ras Al-Hikma city, with total investments of $35 billion whose entitlements will be earned within two months, and the state will have a 35 percent share of the project's profits.
Egypt received $5 billion on March 1 as the final installment of the first tranche of the Ras El Hekma deal with the United Arab Emirates, as announced by the Egyptian Cabinet in a statement.
In March, the Central Bank of Egypt's decision to float the Egyptian pound (EGP) and increase interest rates by 600 basis points.
The CBE raised the overnight deposit rate, the overnight lending rate, and the rate of the main operation by 600 basis points to reach 27.25 percent, 28.25 percent, and 27.75 percent, respectively. Additionally, the discount rate has been raised by 600 basis points to 27.75 percent.
The agency pointed out that the positive outlook reflects the possibility of further improvement in Egypt's external situation and easing the severity of the foreign currency shortage, adding that market-driven exchange rate determination will help boost GDP growth and over time support the government's plan to stabilize public finances.
The agency cautioned that it may have to revise expectations back to stable if authorities falter in macroeconomic reform commitments, including exchange rate flexibility, and if economic imbalances such as foreign currency shortages reemerge. This also includes the non-decline of the high interest costs borne by the government, which increases the risks of exchanging distressed debts.
As for an upgrade in the rating, it would occur if Egypt's net external debt improves faster than the agency currently expects, through accelerated pace of debt reduction, for example, or foreign direct investment supported by the planned sale of state assets.
The agency indicated that it could raise the rating if a broader availability of foreign currency leads to the relaxation of restrictions on foreign exchange.
Comments
Leave a Comment