Fitch affirms Egypt

Fitch Ratings said it affirmed the Arab Republic of Egypt's BB+ foreign-currency and BBB local-currency issuer default ratings, B short-term rating and BB+ country ceiling. The outlook is stable.

The agency said Egypt's sovereign ratings strike a balance between impressive progress on economic reform and a strong external position on the one hand and weak public finances, continuing data deficiencies despite some improvements and a perceived rise in political uncertainty on the other.

Weak public finances remain the major constraint on the ratings, notwithstanding ambitious tax and customs reforms aimed at addressing longstanding structural problems, and it is still too soon to say that the budget deficit is on a secure downtrend, Fitch said.

Foreign direct investment rose five-fold in 2005. The agency attributed this primarily to non-oil investment, but said the energy sector and the revitalized privatization program also contributed. The agency also described the forthcoming privatization of the Bank of Alexandria, the fourth-largest public-sector bank, as an "important milestone" in a decade-long objective to reform the financial sector and predicted that it will attract much foreign interest.

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