S&P Global Ratings has affirmed Egypt’s credit ratings at B-/B, maintaining a positive outlook, highlighting the country’s progress in implementing reforms since the liberalization of its exchange rate regime in March, a statement showed on Saturday.
Positive outlook
The rating agency noted that Egypt’s external liquidity and fiscal accounts are bolstered by a significant rise in foreign direct investment (FDI), a robust donor program, and steady inflows from portfolios and remittances. Thanks to a tight monetary policy and high interest rates since March, the government has managed to allocate approximately 70% of its revenue to interest payments, S&P said.
The positive outlook suggests potential for further improvements in Egypt’s external and fiscal positions. S&P emphasized that the new exchange rate regime, driven by market forces, is expected to support GDP growth and aid fiscal consolidation.
However, S&P cautioned that the government may face challenges in maintaining large primary budget surpluses as outlined in its targets with the International Monetary Fund (IMF). Additionally, considerable geopolitical risks could impact key sectors, such as tourism and energy.
The agency indicated that it might consider upgrading Egypt’s ratings if there is a faster-than-expected improvement in the country’s net government or external debt positions, potentially through accelerated deleveraging or increased FDI.
Regional challenges
Egyptian President Abdel Fattah El-Sisi warned on Sunday that the country may have to reconsider its $8 billion program with the IMF if global institutions do not take regional challenges into account.
“As for the program we’re engaged in now, and this is a message we’re sending to ourselves and concerned international institutions, the Fund and the World Bank and all the institutions, we are doing this under extremely difficult regional and global circumstances,” El-Sisi said on the sidelines of the Global Congress on Population, Health, and Development on Sunday.
“The program we have agreed upon with the fund — and that is an important matter that I am telling the government and myself — if this challenge will hurt public sentiment if people cannot bear it, we must re-evaluate our situation,” El-Sisi cautioned.
The remarks followed Egypt’s decision to raise prices for certain petroleum products for the third time this year, sparking public criticism.
Egypt’s fuel pricing committee raised Friday 80 octane and 92 octane gasoline by approximately $0.031 (EGP 1.5) each to $0.28 (EGP 13.75) per liter and $0.31 (EGP 15.25) a liter, respectively.
Likewise, the price of 95 octanes was raised by $0.041 (EGP 2) to $0.35 (EGP 17) per liter.
Moreover, diesel prices were raised from $0.24 (EGP 11.50) to $0.28 (EGP 13.50) per liter, while the price of mazut was raised from $174.8 (EGP 8,500) to $195.4 (EGP 9,500) per ton, and automotive gas from $0.12 (EGP 6.5) to $0.14 (EGP 7).
A week earlier, official data showed that Egypt’s annual urban consumer price inflation rose for a second month in September, inching up to 26.4% from 26.2% in August, amid a sharp hike in energy costs. September inflation has been driven partly by fuel hikes of 10-15% at the end of July, a 25-33% jump in metro ticket prices in early August, and a 21-31% rise in electricity tariffs in August and September.
Recently, Egypt has begun scaling back subsidies on several essential services and goods. In August, Prime Minister Madbouly indicated that the North African country might transition from subsidizing basic commodities to providing direct cash assistance to its poorest citizens, starting with the upcoming fiscal year running from July to June.
Egypt’s GDP
Egypt’s real Gross Domestic Product (GDP) rose by 2.4% in the second quarter of 2024, up from 2.2% in the first quarter, boosted by growth in non-petroleum manufacturing, construction, and trade. The Central Bank of Egypt said that leading indicators for the third quarter suggest that real economic activity is gradually recovering, and is expected to realize its full potential by fiscal 2025-2026.
