Egypt’s outlook has been downgraded by the international rating agency Fitch from “B+” to “B”. The outlook for the country remains negative.
The primary causes for the downgrading are the country’s increasing external financing risk as a result of funding obligations and its restricted external financing circumstances, according to Laure de Nervo, an analyst with Fitch’s Primary Rating.
“Uncertainty around Egypt’s ability to meet its external financing needs has increased, reflecting still constrained prospects for market access and the lack of market confidence in the Central Bank of Egypt’s (CBE) new exchange rate regime, which has held back foreign currency (FC) inflows,” the statement said.
The rating action also reflects a “marked deterioration of public debt metrics, including a renewed deterioration in government interest costs/revenue, which, if not reversed, would put medium-term debt sustainability at risk,” Fitch said.
The debt sustainability and affordability profiles of the government are also at risk, according to Moody’s Investors Service.
The effects of the Russia-Ukraine war have severely damaged the Egyptian economy.
In March, the country’s overall inflation rate rose to 32.7%, according to the statistics office CAPMAS. The economy has been in turmoil due to escalating inflation brought on by a series of currency devaluations that began in March 2022.
There are doubts about whether the government is moving quickly to implement the reforms it pledged in exchange for receiving a USD 3 billion lifeline from the IMF, despite the fact that Prime Minister Mostafa Madbouly has repeatedly stated that the nation is more than capable of paying its debts.
“We see a risk that a further delayed transition to a flexible exchange rate will further undermine confidence, and, potentially, delay the IMF programme,” the Fitch statement said.
The rating company predicts that the currency will decline even more before levelling in the fiscal year that ends in June 2024.
In the previous month, S&P Global Ratings predicted that Egypt’s currency will continue to depreciate.