Fitch doesn’t see a credit rating upgrade in the cards just yet: Egypt’s recent string of positive economic developments — the USD 35 bn Ras El Hekma agreement, our expanded USD 8 bn IMF program, and the central bank’s decision to float the EGP that seems so far to be going to plan — are not enough for Fitch Ratings to upgrade the country’s sovereign credit rating or outlook, the agency’s head of Middle East and Africa sovereigns Toby Iles told Reuters. The developments were “already sort of baked into the rating and its stable outlook,” Iles said.

Remember: The credit rating agency in November cut our credit rating to B- from B and revised its outlook to stable from negative.

Fitch is concerned about the sustainability of our reforms: “To think about positive rating action, a reduction in external vulnerabilities was one thing we identified. And I think we certainly have that in the near term. It’s the question of whether vulnerabilities re-emerge,” Iles told the newswire.

Fitch seems skeptical about the float: Recent EGP gains could quickly be wiped out — as was the case following the 2016 devaluation — if the country doesn’t see a durable move towards a flexible exchange rate regime, Iles explained. “Some sign that it’s actually floating, that would clearly be positive, because it means they have this way of absorbing shocks which they have not had before,” Iles said.

Debt affordability is also a sticking point: The country’s debt trajectory is “quite severe” with the debt-to-GDP ratio close to 100% and the interest cost to government revenue nearing 50%, he noted, adding that curbing inflation could help lower interest rates and, in turn, the government’s debt costs.

On the bright side: The central bank’s decision to float the EGP “will have quite a powerful impact on remittances” and could help offset financial losses triggered by the war on Gaza, he said.

Remember: Remittances from Egyptian expats abroad have reportedly increased 10-fold since the float of the EGP earlier this month after dipping 30% y-o-y to USD 22 bn in 2023.

The verdict will be out in a couple of months: Fitch will review the country’s rating in May, which Iles reckons is too early to judge the trajectory of Egypt’s public finances.

Moody’s is a lot more optimistic: Fitch’s view stands in contrast to Moody’s, which earlier this month upgraded Egypt’s outlook to positive from negative on expectations that FX flows from the Ras El Hekma agreement will cover the country’s external financing gap until the fiscal year 2025-2026 and strengthen “macroeconomic rebalancing.” Moody’s also upgraded the long-term deposit ratings outlook of five local banks to positive from negative a few days later.

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