EGYPT – Fitch Ratings Inc, an American credit rating agency has maintained Egypt’s long-term foreign-currency (LTFC) Issuer Default Rating (IDR) at ‘B+’ with a stable outlook.

Fitch attributed the decision to the country’s recent track record of economic and fiscal reforms, and improvements to macroeconomic stability and external finances.

Fitch indicated that macroeconomic performance further strengthened in 2019, with real GDP growth firming to 5.6% and inflation falling to single digits.

Furthermore, the research note indicated that the government hit its fiscal targets in FY19, with preliminary numbers indicating a budget deficit of 8.2% of GDP, down from 9.7% in FY18, and a primary surplus of 2.0% of GDP.

Fitch forecasts real GDP growth will remain robust at around 5.5% in fiscal years (FY) 2020 and 2021, with balanced risks to this forecast.

“We forecast inflation to average at 9.5% in 2019 and 8% in 2020/21, down from 14.4% in 2018.Real interest rates remain comfortably positive, even after the Central Bank of Egypt (CBE) has cut its main policy rate by a cumulative 450bp in 2019, to 12.25%,” Fitch said.

Fitch forecasts the budget deficit to narrow in FY20 to 7.6% of GDP, helped by lower interest spending in particular, but to remain slightly wider than the government target (7.2% of GDP), given lower revenue projections and weaker assumptions for real GDP growth and nominal GDP.

Additionally, the agency expects Egypt to remain committed to its reform programme, following the completion of its $12bn three-year Extended Fund Facility with the International Monetary Fund (IMF), which officially ends in November 2019. The final disbursement occurred in July.

Fitch also noted that the Egypt’s net external debt has risen sharply, but at 16% of GDP it remains lower than the current ‘B’ peer median of 28% of GDP.

Around 60% of sovereign external debt is multilateral, bilateral or in the form of GCC deposits.

The agency however, said that the country’s rating is constrained by large fiscal deficits, high general government debt to GDP ratio, and weak governance scores (as measured by the World Bank governance indicators), which underscore political risks.

In its concluding remarks, Fitch noted that the potential for political instability remains a risk, given ongoing structural problems including high youth unemployment and deficiencies in governance