{"id":585586,"date":"2023-04-26T00:00:00","date_gmt":"2023-04-26T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2023\/04\/26\/sp-global-ratings-lowers-egypts-debt-outlook\/"},"modified":"2023-04-26T00:00:00","modified_gmt":"2023-04-26T00:00:00","slug":"sp-global-ratings-lowers-egypts-debt-outlook","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2023\/04\/26\/sp-global-ratings-lowers-egypts-debt-outlook\/","title":{"rendered":"S&P Global Ratings lowers Egypt\u2019s debt outlook"},"content":{"rendered":"

<\/span>S&P Global Ratings has cut its outlook on Egypt\u2019s debt to negative<\/span>, warning that the country risks not being able to meet its external funding needs if it doesn\u2019t deliver on economic reforms tied to its IMF assistance program. The downbeat forecast \u201creflects risks that the policy measures implemented by the Egyptian authorities may be insufficient to stabilize the exchange rate and attract foreign currency inflows,\u201d the ratings agency sai<\/span>d in its latest review <\/span>on Friday, which held the country\u2019s credit rating at B. <\/span><\/p>\n

Some USD 37 bn is needed by June 2024:<\/span> S&P estimates our external financing needs at USD 17 bn for FY 2022-2023 and USD 20 bn for the following year, with USD 26 bn of this required to finance the current account deficit. The ratings agency currently expects these requirements to \u201clargely be met,\u201d with almost USD 10 bn in FDI and the remainder to come from GCC investment, portfolio flows and fresh borrowing. \u201cWe assume that any external funding gaps will be covered by additional GCC government support,\u201d S&P wrote.<\/span><\/p>\n

Delivering on reform is key:<\/span> There has been \u201crelatively limited\u201d evidence that authorities are implementing the IMF-backed reforms, which is placing further pressure on the EGP and increases the risk that lenders could \u201cpotentially delay or do not provide Egypt with the agreed funds,\u201d the ratings agency said. Under its <\/span>USD 3 bn program<\/a><\/span> with the IMF, Egypt committed to maintaining a flexible exchange rate, reducing the state\u2019s economic footprint via a large-scale privatization program, and improving the transparency of state- and military-owned companies. <\/span><\/p>\n

Investors are looking for clarity on exchange rate policy + fair competition: <\/span>Advancing the privatization program \u201chinges on more clarity from the authorities on exchange rate policy,\u201d S&P wrote, adding that investors may also be concerned about doing business in Egypt if more isn\u2019t done to increase transparency and level the playing field. Negotiations with Saudi Arabia, the UAE and Qatar to unlock the bns of USD of investment pledged last year have stalled in recent weeks amid currency uncertainty and signs that the country\u2019s Gulf allies want to see more reform progress before investing.<\/span><\/p>\n

S&P expects the EGP to fall further:<\/span> The ratings agency expects the EGP to decline 53% in FY 2022-2023 and to continue to drop slightly in the following years. The official exchange rate has remained little changed since early March amid a continued shortage of foreign currency, causing the rate in the parallel market to widen and raising <\/span>speculation<\/a><\/span> that the central bank will have to further devalue the currency. The currency h<\/span>as fallen 39% <\/span>so far this year, according to our math.<\/span><\/p>\n

The IMF is also reportedly insisting on reform progress: <\/span>Bloomberg reported<\/a><\/span> earlier this month that the IMF will not go ahead with the first review of the loan program until authorities begin selling down state assets and transition to a flexible exchange rate. The review was initially scheduled to take place in mid-March.<\/span><\/p>\n

S&P isn\u2019t the first ratings agency to take negative action on Egypt in recent months:<\/span> All three of the major ratings agencies have now issued warnings on Egypt\u2019s debt sustainability in recent months, with <\/span>Moody\u2019s <\/span>downgrading Egypt\u2019s rating<\/a><\/span> for the first time <\/span>since 2013<\/a><\/span> in February and Fitch <\/span>cutting its outlook<\/a><\/span> to negative in November.<\/span><\/p>\n

More from S&P:<\/span><\/p>\n