Finance Minister Hany Qadry Dimian considers Fitch Ratings' decision to upgrade its evaluation of the Egyptian economy as an important positive step to boost investor confidence.
The minister said that the move supports recent efforts by the government to save funds for its developmental plans and attract more investments in the coming period, especially since it is the first time to raise Egypt’s credit rating following a series of devaluations over the past few years.
Fitch Ratings had previously upgraded Egypt's long-term foreign and local currency Issuer Default Ratings (IDR) to 'B' from 'B-'. The outlooks are stable. Fitch has also upgraded the issue ratings on Egypt's senior unsecured foreign and local currency bonds to 'B' from 'B-'. The Country Ceiling has been upgraded to 'B' from 'B-' and the short-term foreign currency IDR is affirmed at 'B'.
Fitch attributed its new rating to the structural and financial reforms carried out by the government to enhance the economy.
According to the minister, the upgrade came simultaneously with praise by several other international financing institutions as well as concluding measures over negotiations with the International Monetary Fund (IMF) during the past month. The minister said that the IMF delegation praised the Egyptian economy and its ability to achieve the required goals over the medium term. He added that such initiatives will bring the highest benefit to the economy during the economic summit slated for March in Sharm el-Sheikh.
Fitch’s decision was based on several economic and political developments such as the government’s adopted strategy to rationalize energy subsidies and widen the tax base. This has led to improvements in the budget’s total deficit, as Fitch expected a deficit of 10.2 percent of GDP in fiscal year 2014-2015, compared to 12.8 percent in FY2013-2014.
Fitch also expects the economy to achieve a growth rate for the ongoing fiscal year of 4.2 percent which is higher than the government’s expected rate of 3.8 percent marking an average of 2 percent increase in growth rates over the past three years.
Fitch also indicated political stability since President Abdel Fattah al-Sisi came to office, which reflects the people’s desire to achieve stability.
However, the institution highlighted risks that endanger Egypt's economy, saying they might negatively affect its credit rating. It warned against the government not continuing the required structural measures to the economy, deterioration of the financial situation and the balance of payments to foreign companies. They also mentioned political turmoil has a potential deterrent for the recovery of the economy.
The raise in Egypt’s credit rating is the first since Fitch issued its first credit rating for Egypt in 1997. It has reduced its grading for Egypt since 2011 five times in row.
