S&P Global Ratings has upgraded Egypt’s credit outlook to positive from stable, maintaining its long- and short-term credit ratings at “B-/B”. This revision underscores confidence in Egypt’s economic trajectory, propelled by exchange rate liberalization and commitment to ambitious fiscal consolidation targets.
Key steps in economic reform
S&P Global views Egypt’s exchange rate liberalization as a crucial milestone in bolstering confidence and fostering economic growth. Moreover, it highlights the importance of the government’s commitment to its ambitious budgetary consolidation targets in achieving economic stability and enhancing debt sustainability.
S&P Global’s positive outlook reflects optimism regarding further improvement in Egypt’s situation. Moreover, it signals the potential mitigation of the decline in foreign currency in the country.
In addition, the liberalization of Egypt’s foreign exchange rate will stimulate gross domestic product (GDP) growth and support the government’s fiscal consolidation agenda over time.
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Economic growth and outlook
S&P projects economic growth in Egypt to moderate to approximately 3 percent in 2024. The agency cites several factors impacting that growth. This includes limited foreign currency liquidity, high inflation rates, and a tight monetary policy. However, S&P expects Egypt’s economy to recover in 2025. While the agency expects the current account deficit to shrink until 2027, it forecasts an increase in the government deficit for 2024. That is primarily due to higher debt servicing costs. Moreover, S&P anticipates continued inflationary pressures following Egypt’s exchange rate adjustment, albeit at a moderate pace until 2027.
The agency also stated that it might revise its outlook back to stable if Egypt does not commit to macroeconomic reforms including exchange rate flexibility. Moreover, Egypt’s outlook will decline again if economic imbalances like foreign currency shortages re-emerge.
As for a rating upgrade, S&P stated that it will improve if Egypt’s net external debt improves faster than it expects. It also stated that it would raise Egypt’s rating if the availability of foreign currency led to easing of restrictions on foreign exchange.