Moody’s kept Egypt’s outlook positive and affirmed its Caa1 rating — seven rungs into junk territory — the credit rating agency wrote. The agency said its positive outlook “reflects the prospect for an easing of Egypt’s debt service burden. Increasing monetary policy credibility and effectiveness.”

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

REMEMBER- In March of last year, shortly after the float of the EGP, Moody’s upgraded Egypt’s outlook to positive from negative and affirmed its Caa1 rating. The agency cited the USD 35 bn Ras El Hekma investment and policy measures taken by the central bank for its decision.

It could go either way: “The ongoing fiscal adjustment and structural reforms raise the prospect of a medium-term improvement in fiscal metrics and higher potential growth. However, geopolitical disruptions and social pressures could challenge the policy adjustment,” Moody’s said.

Still a long way to go: Moody’s flagged continued risks from high debt (89% of GDP), low revenue (19% of GDP), and a still-wide current account deficit (6% of GDP). Structural rigidities, the outsized role of the public sector, and vulnerability to geopolitical or social pressures could also slow down reform momentum.

A possibility for an upgrade: Moody’s indicated that the rating could improve if there is sustained improvement in debt affordability, driven by structurally higher revenue and lower borrowing costs. Continued adherence to a flexible exchange rate regime and preservation of FX buffers would also support a stronger credit rating over time.

…Or a downgrade: However, the agency warned that downward pressure could materialize if macroeconomic reforms stall, debt affordability deteriorates further, or FX buffers come under renewed stress due to capital outflows or external shocks.

Tags: