Moody’s affirmed Egypt’s long-term foreign and local currency issuer ratings at Caa1 on February 19, 2025, maintaining a positive outlook for the country. The agency also confirmed Egypt’s foreign-currency senior unsecured ratings and its MTN program rating at (P)Caa1.
Moody’s has upheld its positive outlook on Egypt since March 2024, citing improvements in the country’s debt service burden and external financial position. Notably, the devaluation and flotation of Egypt’s currency have strengthened foreign exchange buffers and lowered borrowing costs.
Inflation control
The Central Bank of Egypt (CBE) has enhanced its monetary policy credibility, targeting inflation control and maintaining a flexible exchange rate regime. In a key move, the CBE adjusted the exchange rate to approximately 50 EGP per dollar in March, followed by a significant 600-basis point hike in interest rates. This was aimed at controlling inflation and stabilizing borrowing costs.
The CBE’s actions are expected to help reduce inflationary pressures and ease the government’s fiscal burden. However, Moody’s warns that Egypt still faces significant credit vulnerabilities. While external debt has been decreasing, Egypt’s fiscal position remains constrained by weak debt affordability and large financing needs.
External debt
According to the International Monetary Fund (IMF), Egypt’s external debt reached 43% of GDP in FY2023/2024, while gross debt stood at 88.3% of GDP in FY2022/2023. Despite these elevated debt levels, the country is on a downward trajectory, with external debt service payments expected to peak at $33 billion, or approximately 9.5% of GDP, in FY2025.
Meanwhile, the current account deficit is projected to reach $18.5 billion (5.3% of GDP), alongside $26 billion in short-term external debt rollovers. These challenges underscore the urgent need for sustained fiscal reforms.
Growth prospects
Moody’s expects Egypt’s fiscal position to improve through planned reforms, such as subsidy cuts, expanded cash transfers, and tax changes. By 2025, the government aims to achieve a primary surplus of 3.5% of GDP, supported by these reforms and potential revenue growth from the Suez Canal.
The shift to a more flexible exchange rate regime has boosted capital inflows, increasing Egypt’s foreign exchange reserves to $36 billion by January 2025. Foreign direct investment (FDI) and project development commitments are expected to further strengthen the country’s external position.
Outlook
Moody’s forecasts a decline in Egypt’s interest-to-revenue ratio, projecting it will fall below 50% by FY2027, down from 63% in FY2025. Similarly, Egypt’s debt-to-GDP ratio is expected to decrease below 80% by FY2027, compared to 84% in FY2025.
Economic growth projections are positive, with the IMF estimating a real GDP growth rate of 3.6% in 2025 and 4.1% in 2026. The World Bank’s October 2024 report also forecasts growth of 3.5% in FY2025 and 4.2% in FY2026. However, inflation remains a concern, with the Central Agency for Public Mobilization and Statistics (CAPMAS) reporting a headline inflation rate of 23.2% in January 2025. To address this, the CBE has extended its inflation target to 7% (±2%) by Q4 2026 and 5% (±2%) by Q4 2028.
Moody’s maintains a positive outlook on Egypt, driven by the country’s fiscal reforms and improvements in monetary policy. Despite ongoing fiscal challenges, such as high external debt and large financing needs, Egypt is on a path toward fiscal stabilization and improved creditworthiness.
