The USD 30 bn Qatari Alam El Roum project is good news for Egypt's credit outlook, but government borrowing costs remain elevated, Moody’s said in a research note seen by EnterpriseAM. The positive credit momentum from the agreement — which the Madbouly government signed with Qatar Investment Authority-owned Qatari Diar last week — is also complemented by other macro developments, including our narrowed current account deficit, higher tax collections, and record primary budget surplus in FY 2024-25.

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The investment agreement also bolsters Egypt’s position as an attractive destination for GCC foreign direct investments, with more investments expected from Saudi Arabia and Kuwait in the coming years, according to Moody’s. These FDI inflows are expected to stabilize the exchange rate and improve investor confidence, which should, in turn, translate into lower and more sustainable inflation rates, the ratings agency said. The ultimate result would be reduced borrowing costs for the government and an improvement in overall debt affordability.

BUT- Debt servicing remains a key challenge: Despite recent developments throughout the past year with regard to inflation and interest rates, debt servicing costs are still elevated, the research note says. The yield on government T-bills dropped to 27% this month, compared to 31% in December 2024, indicating that the government’s borrowing rate did not cool at the same pace as inflation.

Egypt continues to have weak debt affordability, with Moody’s noting that “the country ranks among the top three sovereigns we rate with the highest interest payments to revenue ratio, which stood at more than 63% for the consolidated general government” in FY 2024-25. When accounting for interest expenses on T-bills and zero-coupon bonds, the ratio would come in above 95%, “implying that the government is spending nearly all of its revenue on debt service,” the note explains.

There’s upside in the outlook: As interest rates continue easing over the next few quarters, the interest-to-revenue ratio is expected to cool to 40% by 2030, excluding interest expense on T-bills and zero-coupon bonds. As government debt should mature within 1.6 years, interest bills should come down quickly.

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