Fitch Ratings has recently revised Egypt’s outlook from stable to positive and affirmed the country’s rating at ‘B-‘. The agency attributes the upward revision to several factors, including reduced external financing risks, stronger foreign direct investment (FDI), and additional foreign capital.
Funding boosts growth prospects
In March, the International Monetary Fund (IMF) approved an expanded financial support package of $8 billion for Egypt. This assistance should bolster Egypt’s efforts to manage its debt burden and stimulate economic growth. Hence, the IMF’s loan program aims to gradually reduce the country’s debt burden, providing crucial support for fiscal sustainability.
In addition, Egypt secured a significant $35 billion real estate investment from the UAE in February. This investment underscores Egypt’s attractiveness to foreign investors and its commitment to infrastructure development and economic diversification.
Following the announcement of the IMF loan program and the UAE investment, Fitch revealed that foreign investors have shown increased interest in Egypt’s treasury bills, resulting in a reduction of Egypt’s net foreign assets deficit by $17.8 billion in March. These inflows contribute to Egypt’s efforts to strengthen its external position and mitigate foreign currency shortages.
Reduced external vulnerability
Fitch stated that near-term external financing risks in Egypt have significantly declined due to the Ras El-Hekma deal with the UAE. Moreover, the flexible exchange rate and the tightening of monetary policy further contributed to the increase in financing and the return of sizeable non-resident inflows to the domestic debt market. In addition, initial steps to contain off-budget spending should help to reduce public debt sustainability risks in Egypt.
Foreign capital rises
Another factor contributing to the improvement in Egypt’s Fitch outlook is the increase in the country’s foreign capital. In March, Egypt received the IMF package and the European Union approved a three-year support package of EUR7.4 billion. Moreover, non-resident holdings of domestic debt rose to $35.3 billion, from $16.6 billion at end-2023.
As a result, the net foreign liability position of Egypt’s central bank fell by around three-quarters in March to $1.3 billion. As for banks, it fell to $2.8 billion from $17.5 billion in January. Moreover, Fitch expects Egypt’s gross foreign exchange reserves to increase by $16.2 billion in 2024 to $49.7 billion.
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Challenges persist
Despite the positive outlook for Egypt, Fitch highlights several challenges that will continue to hinder the country’s growth. Inflation rose to 35.7 percent in February, partly due to parallel market depreciation and foreign exchange shortages, before edging down to 33.4 percent in March. Fitch projects inflation to fall to 12.3 percent in June 2025, citing broad exchange rate stability and easing supply constraints.
The report expects Egypt’s GDP growth to slow to 3.1 percent in 2024 before accelerating to 4.7 percent in 2025 as confidence strengthens and FDI spending increases. However, this growth is still slightly below Egypt’s trend rate.
Amidst geopolitical conditions and high-interest costs, tourism and Suez Canal revenues are still at risk. However, the banking sector remains resilient, and public debt should decline to 84.5 percent of GDP in 2025.
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