Egypt’s credit outlook is looking a whole lot healthier: Fitch Ratings has revised up its outlook on Egypt’s long-term foreign currency debt to positive from stable, citing a reduction in near-term external financing risks on the back of an influx of foreign capital from the Ras El Hekma agreement, fresh funds from international financial institutions, non-resident holdings of domestic debt doubling since January to USD 35.3 bn in March, the float of the EGP, and interest rate hikes, the credit rating agency said in a statement.

Good news for sure, but Fitch isn’t ready just yet to upgrade our rating, affirming its B- rating — six notches into junk territory.

“Near-term external financing risks have markedly reduced” on the back of the Ras El Hekma agreement, float of the EGP, and the tightening of monetary policy, according to Fitch. The new post-float normal has also helped further bridge these risks as it has attracted back foreign interest in the local debt market and led to other international financial institutions to pledge additional funding. This was also helped by the fact that non-resident holdings of domestic debt (i.e. debt held by foreign investors or institutions) more than doubled to USD 35.3 bn by March, from USD 16.6 bn at the end of last year.

Currency exchange confidence has also helped: “Fitch has somewhat greater confidence that exchange rate flexibility will be more durable than in the past,” the rating agency wrote — marking a shift away from the skepticism towards the EGP float it held in late March.

And there’s some promising movement going forward: The Ras El Hekma agreement “underscores the strength of GCC financial support for Egypt,” according to the rating agency. Government efforts to start reeling in off-budget spending through the new Public Government Budget and an EGP 1 tn cap for public investment in the next fiscal year will also reduce debt sustainability risks.

But we’re not in the all-clear just yet: Loosening fiscal policy, an unmoving current account deficit, weaker commitment to the flexible exchange rate, and/or an escalation of regional conflict were all listed as potential threats to Egypt’s future credit rating, Fitch wrote.

Finance Ministry reax: “The Egyptian economy has gradually begun to restore the confidence of international ranking institutions […] by adopting reformative, advanced, integrated and sustainable economic policies,” said Finance Minister Mohamed Maait in a statement. “The positive financial indicators during the past nine months reflect the efforts made to achieve financial discipline in light of global crises,” added Vice Minister of Finance Ahmed Kouchouk.

OTHER KEY KEY INDICATORS TO WATCH OUT FOR-

#1- Inflation: Fitch projects that inflation will fall from 33.4% y-o-y in March to 12.3% y-o-y by June 2025.

#2- GDP: Fitch sees growth in the current fiscal year slowing 0.7 percentage points to 3.1% before picking up to 4.7% in the next fiscal year thanks to an uptick in business confidence, FDI remittances, and real incomes.

#3- Foreign currency reserves: Fitch expects foreign currency reserves to reach USD 49.7 bn in the current fiscal year and USD 53.3 bn in the next.

#4- Fiscal deficit: The credit ratings agency expects the general government deficit to narrow by 0.3 percentage points to 5.5% of GDP in the current fiscal year, before widening above the government’s target of 7.3% to 8.8% of GDP in the next fiscal year owing to high debt servicing costs and no big ticket Ras El Hekma type projects in the pipeline.

#5- Debt interest costs: The debt interest-to-revenue ratio is set to peak at around 68% in the next fiscal year, before falling to a still-high 45% by the fiscal year 2027-28.

The international press also took notice of the upgrade: Bloomberg.

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