The pundits were in overdrive late last week and into the weekend , with everyone from Moody’s (more threats of a downgrade) to Citi (no longer bullish on our debt) and Bloomberg (devaluation is inevitable) weighing in on where the Egyptian economy goes next. We read so you don’t have to:

UP FIRST- Moody’s is extending its review of a potential downgrade for our sovereign credit rating as it weighs progress on the government's reform agenda against evidence of weakening FX liquidity and the likelihood of further currency devaluation, the rating agency said in a statement (pdf) on Thursday. The review of Egypt's B3 long-term foreign-currency and local-currency issuer ratings will continue for another three months, the Finance Ministry said following the announcement.

Remember: Moody’s in May started a review to downgrade the country’s debt score, warning of growing risks to the country’s liquidity and debt affordability. The agency had cut our credit score to B3 back in February. Each of the big three rating agencies have revised their stance on Egyptian debt this year: Fitch Ratings in May cut its rating to B while S&P Global Ratings in April downgraded its outlook to negative.

Here’s what Moody’s is keeping an eye on:

#1- Declining FX liquidity: A persistent decline in FX liquidity could offset the proceeds of recently announced asset sales, Moody’s said, pointing to the widening deficit in net foreign assets. The deficit in net foreign assets widened to negative USD 27.1 bn in June from negative USD 24.4 bn in May, an amount that exceeds the US D 1.65 bn in FX expected from the sale of state assets. “If sustained, continued net outflows could potentially undermine the goal to sustainably replenish the economy’s FX liquidity buffers ahead of increased debt service payments in FY 2023-24 and FY 2024-25,” the rating agency wrote.

Remember: The government expects to sign the final contracts to sell the USD 1.9 bn ofstate-owned assets in September, an unnamed government official recently told CNN Arabic. Investors are currently conducting due diligence on the assets ahead of agreeing final terms.

#2- The threat of further devaluation: “The persistence of foreign exchange shortages, as reflected in a parallel exchange rate . . . increases the likelihood of renewed official currency devaluation that could further drive inflation, borrowing costs and the general government debt ratio to levels more consistent with a lower rating level,” Moody’s said. The parallel rate currently stands at EGP 38.00 against the USD, compared to the official rate of EGP 30.90.

#3- Progress with the IMF program: “Moody's would consider lack of progress with the IMF review over the remaining review period as an indication of a potential weakening of external financial support, which otherwise provides a key support to Egypt's credit profile at the current rating level,” according to the rating agency.

Remember: The IMF in April postponed its first review of the USD 3 bn loan program due to a lack of progress on privatization and exchange-rate flexibility. Initially scheduled for March, the review is now widely expected to take place in September.

On the bright side: The report acknowledges “significant progress” in selling state assets and business environment reforms, including the removal of preferential tax breaks for state firms.

What’s next? “The extended review period will focus on the extent to which the proceeds of the recently concluded asset sales help restore foreign currency liquidity buffers evident in foreign exchange reserves, the monetary system's net foreign asset position, FDI inflows, as well as exchange rate dynamics,” Moody’s said.

The story was picked up by the foreign press: Bloomberg.

CITIGROUP IS BEARISH ON OUR DEBT-

Strategists at Citigroup said they had reduced their overweight call on Egyptian debt because the privatization program is “increasingly falling behind targets,” according to a note picked up by Bloomberg. The downbeat sentiment reflects a shift from the US bank’s position in June, when Luis Costa, global head of emerging-market sovereign credit at Citigroup, said that the US bank has adopted “a more positive view” on the EGP and the country’s USD bonds in the short-term.

What they’re saying: “Idiosyncratic risks remain elevated in Egypt,” the strategists wrote in the note. “The prospect of a delayed IMF agreement is increasing as the pace of privatization appears insufficient to meet its quantitative performance criteria.”

FINMIN’S REAX-

Maait responds: Moody’s decision to extend its review “reflects a balanced view of the steps and reform measures” taken by the government during recent months as well as an “understanding of the external and internal difficulties” facing the Egyptian economy, the ministry statement quotes Finance Minister Mohamed Maait as saying in response to the Moody’s report.

Working on it: The government is “working on achieving more reforms and structural measures during the coming months” to address the challenges outlined by Moody’s as well as other economic headwinds, the minister said.

DEVAL WATCH-

Another deval is inevitable, says Daoud: The country’s low portfolio inflows, negative net foreign assets, and interest rates all mean that “another devaluation is a matter of when and how much rather than if,” Bloomberg chief EM economist Ziad Daoud said in an interview with Bloomberg TV (watch, runtime: 4:29).

#1- Inflows: “[Egypt] has a current account deficit of USD 10 bn. It's not getting much in terms of portfolio inflows . . . or foreign direct investment, which means you have lots of demand for external currency and that requires a weaker currency,” said Daoud.

#2- Foreign liabilities: “If you look at the net foreign assets of the central bank and the banking system as a whole, it's never been so negative,” said Daoud. “So all these entities are running liabilities that are much bigger than their assets, and their capacity to defend the pound going forward and keep it stable is no longer there.”

#3- Interest rates: “And if you look at the interest rates . . . Egypt offers a very low interest rate relative to where inflation is . . . it’s deeply negative . . . much lower than its emerging market peers,” said Daoud. “And that, again, that's not attracting capital into Egypt."

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