Finance: Moody’s changes outlook on the Egyptian economy to positive, raising the credit rating

Ahmed Yacoub

Friday, March 8, 2024 02:41 PM

Maait added, in a press statement, today, Friday, that changing the outlook for the future of the Egyptian economy to positive, as well as Moody’s praise of the bold developments, reforms, and decisive steps that are currently taking place in Egypt and taken by the government to support macroeconomic stability, is a testimony of confidence in macroeconomic management. In Egypt during this difficult and challenging stage, which has proven the ability of the policies we have adopted to confront multiple shocks over the past years, the goal will remain to work vigorously to raise Egypt’s credit rating during the next stage.

A statement by the Ministry of Finance stated that Moody’s enumerated the bold measures taken by Egypt, especially the shift to a flexible exchange rate, increasing interest rates by 600 points once, and completing an agreement at the expert level with the International Monetary Fund, to end the first and second reviews of the Egyptian reform program. It was agreed to increase the value of the Fund’s financing for Egypt to $8 billion compared to $3 billion, in addition to $1.2 billion that Egypt will receive from the Environmental Sustainability Fund of the World Bank Group, as well as the recent announcement of an unprecedented, historic deal to develop the Ras El Hekma region with immediate revenues for Egypt of $ 35 billion dollars. All these developments, according to Moody’s, will help cover the financing gap until the fiscal year 2025/2026 and eliminate waiting lists for demand for the dollar.

At the same time, Moody’s expects that transferring a portion of UAE deposits in Egypt to foreign direct investment, amounting to $11 billion, will improve the situation of the banking sector.

The minister indicated that the ministry’s leaders are intensifying their contacts with other rating institutions and global investment circles to explain all these developments, reforms, government plans, developments in Egyptian economic policies that support the competitiveness of the Egyptian investment climate, and the reforms and measures that have already been taken in the financial and monetary policies. It is hoped that a report will Moody’s has given positive feedback to these entities, which will be reflected in investment flows to the Egyptian economy during the coming period and raising Egypt’s credit rating with the three credit rating institutions in the next few months.

The minister explained that the government is committed to protecting low- and middle-income families and taking social measures that will mitigate the impact of the economic policies followed on Egyptian families. Additional steps have already been taken to protect the groups most affected by the inflationary wave at an annual cost of up to 180 billion pounds, and a total cost. Starting this March, with an amount of 240 billion pounds, and it began to be fully activated starting this month, to mitigate the impact of high inflation rates, and the state and the Egyptian government will continue to work to increase social spending.

The minister confirmed that the government has a plan to begin reducing the debt-to-GDP ratio to less than 80% within the next three years, pointing out that it will begin reducing the cost of debt service as the inflationary wave begins to recede and the currently high interest rates decline.

Ahmed Kouchouk, Deputy Minister for Financial Policies, pointed out that the government will continue to implement the state ownership policy document and enhance competition between the private and public sectors, which is considered among the Egyptian government’s priorities during the next phase, which contributes to strengthening the role of the private sector in leading economic growth, and among the most important reforms taken. In this regard, it is to advance the pace of the exit program, provide more investment opportunities for the private sector, and cancel any preferential tax treatment for all state-owned companies.

Moody’s explained that it believes that the announcement of an agreement at the expert level with the International Monetary Fund, which was accompanied by bold announcements in financial, monetary and investment policies, especially the decisions of the Monetary Policy Committee of the Central Bank at its last extraordinary meeting, will increase support for efforts to target inflation levels, and reaffirm Egypt’s commitment. By targeting inflation and putting it on a downward path to single digits, while the foreign currency shortage will shrink and recover thanks to the expected foreign currency inflows into the Egyptian economy, whether in the form of direct transfers and investments or indirect investments in financial portfolios.

Moody’s also noted that downside risks have decreased significantly; The large investments in the Ras El Hekma project are working to strengthen the Egyptian economy’s foreign exchange reserves, to cover the external financing gap until the fiscal year ending in June 2026.