Fitch retained Egypt’s long-term foreign and local currency Issuer Default Ratings (IDR) at B- but upgraded the outlook on IDR from negative to stable on stabilizing macroeconomic and political picture.
Macroeconomic indicators have improved following the injection of bilateral assistance to the tune of USD 15bn mostly from Kuwait, Saudi Arabia and the United Arab Emirates in the wake of an army–backed popular uprising in July 2013 that led to the ouster of President Mohamed Morsi. The aid package eased the pressure on reserves, the exchange rate and the budget and as a result foreign reserves were lifted to over three months of current external payments covering imports and debt servicing.
Fitch’s revision of Egypt’s outlook was partially supported by reduced political volatility following a tough crackdown on the Muslim Brotherhood, restrictions on protests and the successful drafting of a constitution slated for a referendum in mid-January. However, the rating agency warned that calming of the political scene came at the cost of deeply polarizing society. Therefore, Fitch sees that reduced political disruption and greater availability of foreign exchange combined with fiscal and monetary stimulus are creating conditions conducive to an economic pick-up with GDP growth forecasted to attain 3.2% in FY 2013/2014 and 3.8% in FY 2014/2015.
Fitch retained Egypt IDR at B- due to a very high general government deficit due to high expenditures. The budget deficit, that hit a 14.1% of GDP in FY 2012/2013 and was financed mostly through public-sector bank financing, is expected to narrow to 12% of GDP in FY 2013/2014 ending in June based on higher bilateral grants and savings on interest payments.
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