02:04 PM
Wednesday 08 February 2023
Cairo – Masrawy:
Moody’s, the credit rating agency, downgraded Egypt’s rating to “B3” for the first time since 2013, attributing this to several reasons, including the rise in future external obligations on Egypt, in exchange for its international reserves.
The agency said, in a report, that the downgrade is due to Egypt’s decline in foreign currency reserves and the ability to absorb shocks, while the economy is going through a structural change aimed at supporting exports and the private sector under a flexible exchange rate regime.
According to the agency – which changed its view of Egypt last May to negative – since that time, liquidity from foreign exchange reserves has decreased, which has increased external vulnerability at a time of fragile global conditions.
Do asset sales help?
Egypt is betting on deals to sell government-owned stakes in companies to support its dollar resources, which was included by the International Monetary Fund in the details of its program for cooperation with Egypt in the economic reform that took place last December.
Moody’s believes that the asset sale strategy – which begins this month – as part of the new IMF program will support this structural adjustment and help generate sustainable non-debt capital inflows to meet increased external debt service payments over the next two years.
But she notes that it will take time for such asset sales to significantly reduce Egypt’s external vulnerability risks, adding that, “Furthermore, despite the clear commitment to a fully flexible exchange rate, the government’s ability to manage the effects on inflation and social stability has yet to be determined.” “.
future balance
Moody’s report notes that Egypt faces liquidity risk pressures reflected in tight international capital market conditions, higher domestic borrowing costs and social spending pressures in an inflationary environment.
On the other hand, however, he believes that the government’s plans to record an initial surplus in the state’s general budget through structural reforms related to export growth and support for foreign direct investment flows can mitigate risks and “reduce the debt burden after a temporary setback.”
