{"id":586113,"date":"2023-05-07T00:00:00","date_gmt":"2023-05-07T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2023\/05\/07\/fitch-ratings-downgrades-our-credit-rating-for-the-first-time-since-2013\/"},"modified":"2023-05-07T00:00:00","modified_gmt":"2023-05-07T00:00:00","slug":"fitch-ratings-downgrades-our-credit-rating-for-the-first-time-since-2013","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2023\/05\/07\/fitch-ratings-downgrades-our-credit-rating-for-the-first-time-since-2013\/","title":{"rendered":"Fitch Ratings downgrades our credit rating for the first time since 2013"},"content":{"rendered":"

<\/span>Fitch Ratings has downgraded Egypt\u2019s sovereign credit rating for the <\/span>first <\/span>time since <\/span>2013<\/a><\/span>, cutting it <\/span>one level to <\/span>B from B+ <\/span>and maintaining its negative outlook. The downgrade comes on the back of \u201chigh external financing requirements, constrained external financing conditions and the sensitivity of Egypt's broader financing plan to investor sentiment,\u201d the ratings agency <\/span>said<\/a><\/span> on Friday. <\/span><\/p>\n

The Big Three are feeling downbeat:<\/span> Fitch Ratings\u2019 decision comes a few months after a similar move by Moody\u2019s which in February <\/span>cut<\/a><\/span>Egypt\u2019s rating<\/a><\/span> to B3, and two weeks after S&P Global Ratings <\/span>downgraded<\/a><\/span>its outlook<\/a><\/span> to negative.<\/span><\/p>\n

The rationale: Uncertainty <\/span>about<\/span> our ability to secure external funding. <\/span>Limited access to debt markets and weak foreign currency inflows \u2014 largely due to a lack of investor confidence in our exchange rate regime \u2014 are weighing on the country\u2019s ability to meet its needs for external financing. \u201cWe see a risk that a further delayed transition to a flexible exchange rate will further undermine confidence, and, potentially, delay the IMF program,\u201d Fitch wrote, noting that it had detected a \u201cmarked deterioration\u201d in the country\u2019s public debt indicators which will \u201cput medium-term debt sustainability at risk\u201d if not reversed.<\/span><\/p>\n

The FX market is key:<\/span> Investors are reluctant to participate in the foreign exchange market due to \u201chigh uncertainty [regarding] the future exchange rate level [and] interventions by public sector banks,\u201d the report said. The USD-EGP exchange rate has remained unchanged since mid-March following three devaluations that have caused the EGP to more than halve in value against the greenback. Fitch \u201cassumes that the exchange rate will depreciate further before stabilizing in the financial year ending June 2024.\u201d<\/span><\/p>\n

How much external financing do we need?<\/span> The government seeks to drum up some USD <\/span>10 <\/span>bn annually in FDI <\/span>starting <\/span>in the current fiscal year \u2014 in addition to an unspecified amount of portfolio inflows \u2014 to cover the current account deficit. Around USD 7.2 bn worth of external government debt will mature in FY 2023-2024 \u2014 up from USD 4.3 bn this year \u2014 exerting further pressure on our external financing needs, according to Fitch.<\/span><\/p>\n

Gulf inflows <\/span>key<\/span>:<\/span> \u201cWe continue to believe GCC support to Egypt's economy is strong, and successful divestment deals with Gulf partners would help restore confidence and unlock further investments,\u201d Fitch wrote. <\/span><\/p>\n

REMEMBER- <\/span>Egypt\u2019s attempts to sell state assets to Saudi Arabia, the UAE and Qatar have stalled in recent weeks amid uncertainty about both the exchange-rate and progress on economic reform. The three Gulf states <\/span>last year pledged to provide<\/a><\/span> more than USD 20 bn in investment and funding for Egypt to help shore up the country\u2019s FX reserves following the economic shock triggered by the war in Ukraine.<\/span><\/p>\n

More from Fitch:<\/span><\/p>\n