Fitch Upgrades Egypt’s Rating For the first time since 2011
Fitch Ratings has upgraded Egypt’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘B’ from ‘B-‘. The Outlooks are Stable.
Fitch has also upgraded the issue ratings on Egypt’s senior unsecured foreign and local currency bonds to ‘B’ from ‘B-‘.
The Country Ceiling has been upgraded to ‘B’ from ‘B-‘ and the Short-term foreign currency IDR affirmed at ‘B’.
KEY RATING DRIVERS The upgrade of Egypt’s IDRs reflects the following key rating drivers and their relative weights: High The government has embarked on a policy course designed to tackle some of the serious structural weaknesses that have emerged or intensified in recent years.
Fuel subsidy cuts and tax hikes have been implemented as part of a clear five-year fiscal consolidation strategy. Power shortages are being tackled, overdue payments to oil companies reduced, investment laws revised and disputes with foreign investors settled.
The measures appear to have strong political backing. Medium Consolidation, stronger growth and lower commodity prices will pull down the fiscal deficit, although it will remain large compared with peers, at a forecast 10.2% of GDP in FY15 (to end June). Excluding grants, the deficit is forecast to narrow by 6.3% of GDP in FY15.
Fuel subsidies have been cut, new taxes introduced and existing taxes reformed in a largely front-loaded reform programme. Introduction of VAT, which will broaden the tax base, is expected later in FY15.
The fiscal position will benefit clearly from lower oil prices, and with wheat prices also well below the budgeted level, will add to the savings on the subsidy bill in FY15. Savings will be partially offset by higher social spending and spending commitments in the new constitution. Fiscal consolidation and stronger nominal GDP growth are forecast to put the debt/GDP ratio on a downward trend, ending a multi-year deterioration.