Fitch Rating’s recently reaffirmed B rating and stable outlook reflects the balance between the country’s strengths and vulnerabilities, the rating agency said in a recent note seen by EnterpriseAM. Although Egypt has a large economy, robust GDP growth potential, and substantial bilateral and multilateral support, it also suffers from weak public finances, high external financing needs, persistent geopolitical risks, unstable commercial financing flows, and elevated inflation, according to Fitch.

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REMEMBER- The global rating agency last month revisited its position on our sovereign debt earlier this month, reaffirming its B rating and stable outlook. This action coincided with another upward revision from S&P Global Ratings, which upgraded Egypt’s long-term sovereign credit rating to B from B-, the first upgrade since 2018, while affirming its short-term rating at B.

The agency points to preserved FX position as one of the key positive developments, enhancing its outlook, with our FX reserves edging up more gradually in 2025 after a strong recovery in 1H 2024, despite the sharp dip in Suez Canal revenues due to regional geopolitical tensions.

Looking ahead, Fitch expects our FX reserves to “remain fairly stable, ending 2027 at 4.2 months of current external payments,” according to the report, which attributed this improvement mainly to the post-float uptick thanks to the policy shift towards a more flexible exchange rate regime since March 2024. Fitch also noted that our “banking sector remains resilient and highly liquid.”

Fitch anticipates further cuts in interest rates as inflation is projected to continue its downward path while making progress toward the CBE target of reducing headline inflation to 7% (± 2 percentage points) by 4Q 2026. This downward trajectory will drag the debt interest-to-revenue ratio from 64% to 40% by 2029, though the report notes this ratio will still be significantly elevated.

ICYMI- Annual headline urban inflation cooled for the fourth consecutive month in September, falling by 0.3 percentage points to 11.7%, supported by a drop in food and beverage price inflation. However, this disinflation streak is expected to soon come to a halt, with inflation data for October expected to show an uptick in inflationary pressures stemming from the recent fuel price hikes to liberalize pricing and recover production costs.

Fitch outlined several factors that would boost our credit profile, including further decline in external vulnerabilities by a marked strengthening of the international reserve position, a sustainable decline of the current account deficit, and fast-tracking structural reforms. Maintaining a flexible exchange rate regime and a marked dip in inflation toward the CBE’s target could also help support an upgrade.

Curbing debt issuance costs and fiscal consolidation also support an upgrade. This could be achieved “through greater revenue mobilization and containment of off-budget spending, that sharply reduce debt interest-to-revenue and put public debt-to-GDP on a firm downward path over the medium term,” the rating agency noted.

Fitch cautioned about some downside risks to our credit rating, including potential weakening in external finances, lower commitment to exchange rate flexibility, and deterioration of international reserves and banks’ net foreign assets. Furthermore, an elevated current account shortfall and a more restricted access to external financing also pose downside risks to our credit profile. The rating agency also noted that our profile could be hammered by any potential increase in debt sustainability risks, fiscal policy loosening, or lower financing flexibility. A further escalation in regional tensions could give a hard blow to tourism and Suez Canal revenues, hurt investor sentiment, and delay the reform timeline.

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