S&P keeps Egypt’s B-/B rating with a positive outlook because it can carry out reforms

On Saturday, S&P Global Ratings confirmed Egypt’s B-/B credit ratings and gave it a positive outlook. They noted that Egypt has been able to make reforms since changing its exchange rate policy in March.

Credit Rating

The rating agency said that Egypt’s ability to manage its foreign money and government finances is getting better because of a big rise in foreign direct investment (FDI), support from donors, and money coming in from investments and remittances. They noted that the government is using about 70% of its income to pay interest because of strict monetary policies and high interest rates since March.

The positive outlook is due to the possibility of further improvements in Egypt’s financial situation. It also suggests that the new exchange rate system, which is based on market forces, will help boost the country’s economic growth and improve government finances.

However, S&P warned that the government might struggle to keep large budget surpluses as required by the International Monetary Fund (IMF). They also pointed out that current geopolitical risks could significantly affect important sectors like tourism and energy.

The agency might think about raising the country’s ratings if the government’s debt situation improves faster than expected, possibly by reducing debt quickly, or if FDI increases.

Inflation Update

On Thursday, the Central Bank of Egypt (CBE) decided to keep interest rates the same. They believe that the current rates are good for keeping inflation under control until it goes down a lot and stays low.

A week earlier, official data showed that inflation in urban areas rose for the second month in a row in September, reaching 26.4%, up from 26.2% in August. This increase was partly due to a sharp rise in energy costs. Inflation in September was influenced by a 10-15% increase in fuel prices at the end of July, a 25-33% rise in metro ticket prices in early August, and a 21-31% increase in electricity rates in August and September.

On Friday, Egypt announced price increases for many types of fuel, including a 17.3% rise in diesel prices and a 7.7% increase in automotive gas prices.

Egypt’s Economy

In the second quarter of 2024, Egypt’s real GDP grew by 2.4%, up from 2.2% in the first quarter. This growth was supported by increases in manufacturing (excluding oil), construction, and trade. The Central Bank of Egypt (CBE) stated that early signs for the third quarter show that the economy is slowly improving and is expected to reach its full potential by the fiscal year 2025-2026.

Published: 21st October 2024

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