S&P Global Ratings has become the second rating agency this month to upgrade Egypt’s outlook, raising its outlook to positive from stable, citing a significant increase in foreign direct investment and recent policy measures taken by the Central Bank of Egypt that have helped the country access a bigger package from the International Monetary Fund.

S&P also affirmed its B-/B rating — six notches into junk territory — for Egypt’s long- and short-term foreign and local currency sovereign credit.

The rationale: Egypt’s positive outlook “reflects our view that the determination of the exchange rate via market forces will help drive GDP growth and over time support the government’s fiscal consolidation plan,” S&P said.

Driving the upgrade: S&P points to the “significant steps” taken by authorities to address the country’s macroeconomic imbalances as well as FX inflows as the main drivers behind its outlook upgrade. Additionally, packages from our partners and the central bank’s decision to float the EGP “should significantly reduce the dislocation in the foreign currency market, while shoring up confidence and growth.”

Long term we’re looking at lower inflation, interest, and debt: The policy measures and funding “should support Egypt’s ability to adjust to external shocks and eventually reduce inflation, interest rates and government debt service costs,” S&P said.

Securing an upgrade: The rating agency would consider raising Egypt’s ratings if the country’s net government or external debt positions improve faster than expected “perhaps via an accelerated pace of deleveraging or FDI supported by the planned sale of state assets.” An upgrade could also be supported “if the wider availability of foreign currency results in the reduction of restrictions on foreign exchange.”

Don’t get too excited: Egypt’s outlook could be revised back to stable “if the authorities’ commitment to macroeconomic reform, including exchange rate flexibility, wanes and economic imbalances, such as foreign currency shortages, build again,” S&P said.

In case you missed it: Moody’s upgraded Egypt’s outlook to positive from negative and affirmed the country’s Caa1 rating earlier this month, citing the Ras El Hekma agreement and recent policy measures.

MEANWHILE- Fitch said it doesn’t see a credit rating upgrade in Egypt’s future just yet, with the agency’s head of Middle East and Africa sovereigns Toby Iles saying that the developments were “already sort of baked into the rating and its stable outlook.” Fitch will review the country’s rating in May, which Iles has said will be too early to judge the trajectory of Egypt’s public finances.

Bloomberg also had the story.

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