Global rating agency S&P on Friday downgraded Egypt's long-term sovereign credit rating by one notch to "B-”, citing the country's mounting funding pressures.
The Agency expected the country’s economy to be affected by the ongoing war between Israel and Gaza since the seventh of October.
“Our current base case is that the conflict will likely be largely contained to Israel and Gaza. However, given its border with Gaza, and its control of the Rafah crossing, Egypt is directly affected.”
“The shutdown of Israel's Tamar gas platform has already reduced Egypt's gas imports to 650 million cubic feet per day (cf/d) from 800 million cf/d, reducing Egypt's ability to meet domestic demand and export liquefied natural gas.”
“Slow progress on key monetary and structural reforms has delayed the disbursement of multilateral and bilateral funds critical to covering Egypt's high external funding needs.”
"The stable outlook balances the risk that the Egyptian authorities may be unable to finance high external debt redemptions," S&P said.
Commenting on S&P's decision, Egypt's Minister of Finance Mohamed Maait stated that the government is pursuing more reforms and structural measures in the next period to cope with the economic challenges from both internal and external sources, especially those mentioned in the S&P’s report.
The report downgraded Egypt’s sovereign credit rating in both local and foreign currencies from B to B-, with a stable outlook in the long term, and kept the short-term credit rating at B.
Maait said in a statement issued by the Ministry of Finance on Saturday that despite the difficulties that the Egyptian economy still faces due to the global inflationary wave caused by geopolitical tensions, Standard & Poor’s changed the future outlook from negative to stable based on the significant structural reforms recently carried out by the Egyptian government, which helped achieve financial discipline.
He explained that the government managed to balance all the current variables and challenges on both the global and domestic levels, including the rise in inflation rates, interest rates, and the depreciation of the local currency against the dollar.
An initial surplus of 1.63% of the GDP was achieved compared to an initial surplus of 1.3% of the GDP in the fiscal year 2021/2022, and the total budget deficit reached 6% of the GDP compared to 6.1% during the fiscal year 2021/2022.
The finance minister pointed out that tax revenue grew strongly by 27.5% due to efforts in modernizing the tax system, improving tax administration, and combating tax evasion and avoidance.
Standard & Poor’s expected financial discipline to continue by implementing measures to modernize the tax system, in addition to the government’s efforts to rationalize spending during the fiscal year 2023/2024, ensuring an initial surplus of 2.5% of the GDP.
Maait confirmed that legislative amendments have been enacted to cancel tax and customs exemptions on economic and investment activities for state-owned entities and companies, leading to fair competition in the Egyptian market as part of the state’s efforts to empower the private sector.
Egypt has implemented around $2.5 billion exit deals during the first quarter of FY2023/2024, which increased foreign exchange inflows and provided the financing required to meet the country's needs, Maait stated.
He added that Standard & Poor’s clarified in its report that it might upgrade Egypt’s sovereign rating if more foreign currency inflows are attracted to the Egyptian economy, considering it as an additional resource that can be achieved by accelerating the offering program in the upcoming period, enhancing the Egyptian government’s ability to cover its financing and external needs over the next two years, and also contributing to reducing external financing needs and thereby reducing debt servicing costs.
