Moody’s downgrades Egypt

Moody’s Investors Service said it downgraded the government of Egypt's long-term foreign- and local-currency issuer ratings to B3 from B2 and changed the outlook to stable from negative. Moody's has also downgraded Egypt's foreign-currency senior unsecured ratings to B3, and its foreign-currency senior unsecured MTN program rating to (P)B3.

“The downgrade to B3 reflects Egypt's reduced external buffers and shock absorption capacity while the economy undergoes a structural change toward a more export- and private-sector-led growth model under a flexible exchange rate regime,” the agency said in a statement.

The government’s announced state-owned asset sale strategy starts this month as part of the new International Monetary Fund program will aid this structural adjustment and help generate sustained non-debt-creating capital inflows to meet higher external debt service payments over the next two years, these measures will ultimately take time to tangibly reduce Egypt's external vulnerability risks, Moody’s noted.

The improved outlook considers the risks involved. On the negative side, Egypt faces liquidity risks mirrored in tight international capital market conditions, higher domestic borrowing costs and social spending pressures in an inflationary environment. On the positive side, the government has a dedicated domestic funding base and a track record of delivering surpluses, Moody’s said.

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