Egyptian government finances gradually improving: Moody’s
Egypt’s government finances are weak but gradually improving, according to a new report released Thursday by Moody’s Investors Service.
In its annual report on Egypt, the credit ratings agency said that Egypt’s credit profile of B2 “stable” reflects the government’s weak, but gradually improving, finances. The agency added that the government’s financing needs are very large with high rollover rates, which may force a tightening of the state’s domestic or external financing conditions.
Egypt has been undergoing a series of economic reforms since late 2016, when the central bank removed its support for the Egyptian pound and allowed the currency to float. This move was a requirement of the International Monetary Fund (IMF), which has loaned Egypt $12 billion over the past three years with various conditions attached. Egypt received the final installment of this loan in late July 2019.
Moody’s expects that domestic borrowing costs will gradually decline as the effects of energy price and tariff hikes dissipate. This will allow the Central Bank of Egypt to lower interest rates.
“Egypt's debt affordability as measured by interest to revenue will remain very weak and financing needs very large in the next few years,” said Elisa Parisi-Capone, a Moody's Vice President – Senior Analyst and the report's co-author.
“Over the longer term, the removal of structural obstacles to a more inclusive, private sector-led growth model will be a gradual process that remains exposed to long-standing vested interests or the risk of reform reversal,” added Parisi-Capone.
The agency added that following annual growth in the 2019 fiscal year of 5.6 percent, this figure should increase to six percent by 2021.
In a statement in July, David Lipton, IMF acting managing director said, “Egypt has successfully completed the three-year arrangement under the Extended Fund Facility and achieved its main objectives. The macroeconomic situation has improved markedly since 2016, supported by the authorities’ strong ownership of their reform program and decisive upfront policy actions.”