Despite fall in reserves, Egypt granted credit upgrade

Moody’s Investors Service on Tuesday raised Egypt’s credit rating to 'B3' with a stable outlook, up from 'Caa1.'

According to Moody’s scale, Egypt’s new rating is still listed as “highly speculative” and below investment grade, but an improvement from its previous status as “high risk.” The upgrade should help to lower Egypt’s borrowing costs.

This follows a December upgrade by ratings agency Fitch that put Egypt at level 'B.' The third global ratings agency, Standard & Poor's, rates Egypt at 'B-minus' with a stable outlook.

The news came the same day Egypt’s Central Bank announced that reserves had fallen to US$15.29 billion at the end of March, from $15.46 billion at the end of February.

Moody’s agency cited Egypt’s improving macroeconomic performance, and projected that Egypt will post 4.5 percent year-on-year GDP growth by the end of the current fiscal year in June — in line with government estimates. Moody’s also anticipates GDP growth of five to six percent over the coming four years, which is slightly below government projections.

The agency also predicts Egypt’s budget deficit will fall to 10 percent of GDP this year, in keeping with the country’s current budget.

Moody’s also cited improvements to Egypt’s net international reserves, noting that they stood at almost $15.5 billion at the end of February.

Wednesday’s release from the Central Bank shows that that figure could drop. However, as Moody’s notes, Egypt’s allies in the Gulf pledged $12.5 billion in official aid and investments, which along with deals signed at the Egypt Economic Development Conference, “will help to mitigate vulnerabilities and reduce balance-of-payment risks.”

Moody’s also credited the government with an “ongoing commitment to fiscal and economic reform,” including subsidy reform, a public sector maximum wage, and a much-discussed value added tax.

On the other hand, Moody’s pointed to security risks, particularly in North Sinai, as well as Egypt’s exposure to violence in the wider region.