Moody’s has upgraded Egypt’s outlook to positive from negative, affirming its Caa1 rating — seven rungs into junk territory — the credit rating agency wrote on Thursday. The agency cited the USD 35 bn Ras El Hekma investment and recent policy measures taken by the Central Bank of Egypt (CBE) which helped the country access a bigger package from the International Monetary Fund.

Macroeconomic rebalancing: The FX inflows from the Ras El Hekma agreement are expected to cover the country’s external financing gap until the fiscal year 2025-2026 — which Moody’s estimates at USD 15 bn — and strengthen “macroeconomic rebalancing,” the rating agency said. In addition, the central bank’s decision to float the currency and hike interest rates by 600 basis points will “reduce the risk of a renewed build-up of external imbalances and strengthen the economy’s shock resilience over time,” it added.

Risks of a downgrade: “Persistently weak debt affordability that undermines confidence in the government’s capacity to service its local currency debt stock would likely lead to a downgrade, as would a renewed build-up in FX shortages as a result of a larger than expected foreign exchange backlog or incomplete currency reform implementation,” Moody’s warned.

Remember: Moody’s in January downgraded Egypt’s credit outlook to negative from stable, citing concerns that the IMF support may be insufficient to ward off macroeconomic challenges and currency instability in the country.

FinMin reax: Finance Minister Mohamed Maait said that Moody’s bullish outlook will help attract more investments, and he expects other credit rating agencies to follow suit, upgrading their outlook on Egypt within the next few months, according to a statement from the Finance Ministry.

S&P also turned bullish on Egypt’s future: S&P Global Ratings says it “has been encouraged” by the float of the EGP, the expanded IMF package, and the unexpected Ras El Hekma investment, S&P Global Ratings analyst Trevor Cullinan told Reuters. “The Egyptian authorities are making really positive statements. Taken on face value they seem committed to this whole reform strategy, but as we know events can derail a government and we will wait and see.”

Remember: S&P downgraded Egypt’s sovereign credit rating in October to B- from B on the back of the FX shortage and rising uncertainties about debt sustainability.

What’s next? The rating agency’s Egypt review is scheduled to come out on 19 April.

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