Egypt’s outlook revised up as external financial risks ease

Reuters/Amr Abdallah Dalsh

Fitch Ratings has upgraded Egypt’s outlook to “positive” from “stable” citing lower external financing risks and increased foreign capital inflow. 

The $35 billion Ras El-Hekma deal with the UAE, a flexible exchange rate, and tightening of monetary policy have reduced near-term external financing risks, the global rating agency said in a report.

“The Ras El-Hekma investment underscores the strength of GCC financial support for Egypt,” it added.

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Fitch anticipates that the exchange rate flexibility will be more sustainable than before, with gross forex reserves projected to increase by over $16 billion in fiscal year (FY) 2024 to $50 billion, despite the current account deficit widening to 5.2 percent of GDP.

In March, the International Monetary Fund augmented the extended fund facility to $8 billion, while the European Union approved a three-year support package of $8 billion.

Non-resident holdings of domestic debt rose to $35.3 billion from $16.6 billion at the end of 2023. 

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As a result of capital inflows, the net foreign liability of the Central Bank of Egypt fell to $1.3 billion, and that of banks to $2.8 billion from $17.5 billion in January.

Fitch forecasts the general government deficit to narrow 0.3 percentage points in 2024 to 5.5 percent of GDP, with fiscal revenues from the Ras El-Hekma deal more than offsetting a 2.7 percent of GDP rise in debt interest. 

However, further escalation of regional conflict poses a risk to tourism and Suez Canal receipts, which are projected to decline by 6 percent and 19 percent, respectively, in 2024.