Fitch downgrades Egypt on growing government debt

Fitch Ratings has lowered Egypt’s long-term foreign-currency issuer default rating (IDR) to B- from B on increased financial risks and rising government debt.

“The downgrade reflects increased risks to Egypt’s external financing, macroeconomic stability and the trajectory of already-high government debt,” the rating agency said in a report.

The slow progress on reforms, including the delay in the transition to a more flexible exchange rate regime and International Monetary Fund (IMF) programme reviews, have damaged the credibility of exchange rate policy.

In addition, downward pressures on the currency have increased, and the path to policy adjustment has become more complicated.

The government will face a significant rise in external debt maturities to $8.8 billion in the fiscal year (FY) ending June 2024 and $9.2 billion in FY25, from $4.3 billion in FY 23.

However, the rating agency expects receipts from tourism, the Suez Canal and a recovery of remittances will help contain financing needs from larger imports.

Fitch revised its outlook to stable from negative, hoping reforms – including privatisation, slowdown of mega projects, and exchange rate adjustment – will accelerate after presidential elections in December, likely paving the way for a new and potentially larger IMF programme and further support from the GCC countries.

Last month S&P Global Ratings lowered Egypt’s long-term sovereign credit rating to B- from B due to the recurring delays in implementing monetary and structural reforms, which are worsening imbalances in the currency market.

Moody’s Investor Service also downgraded Egypt’s credit rating to “Caa1” from “B3”, citing high inflation and rising domestic borrowing costs.