CAIRO: The Tuesday upgrade by Moody’s Investors Service of Egypt’s issuer and senior unsecured bond ratings to B3 from Caa1, with a stable outlook, was the first positive step from the most reserved rating agency since the January 25 Revolution in 2011, yet it remains “very low,” Amr Hassanein, the Chairman of Middle East Rating and Investors Services (MERIS), told The Cairo Post.
Earlier in October, the global rating agency upgraded Egypt’s investment outlook from negative to stable, but kept its government bond rating at Caa1.
“This upgrade has taken Egypt out of the (C) zone which marks an extreme risk close to a default situation to the (B) zone which bears less risk but remains very low and flagging,” Hassanein told The Cairo Post via telephone.
However, Moody’s recent action is a fresh start which would be a positive incentive to other agencies like Standard & Poor’s and Fitch Ratings to reconsider Egypt’s rating.
The success of Egypt’s economic summit held in Sharm el-Sheikh March 13-15, which resulted in around $60 billion in reported investment deals and memoranda of understanding according to Egypt’s Prime Minister Ibrahim Mahlab, together with a total of $12.5 billion pledged by Gulf Cooperation Council (GCC) member countries in aid and investments, motivated the rating agency to take this action after sex consecutive downgrades since 2011, Hassanein said.
Moody’s attributed the upgrade to three key drivers topped by the “improvement of macroeconomic performance, reduction in external vulnerabilities, and government’s ongoing commitment to fiscal and economic reform.”
Hassanein also cited the government’s ongoing progress in applying economic and fiscal reforms, namely subsidy cuts, along with plans to increase revenues by introducing a value-added-tax in the coming fiscal year, and expanding its tax base.
Moody’s said it expects such procedures to help gradually reduce fiscal deficits, and predicted a slide in government’s deficit to around 10 percent of GDP in fiscal year 2015 (to end June 30,) and a further edge down to nearly 9.3 percent by 2016.
“Activating investment deals signed at the economic summit and implementing the announced projects as soon as possible is required for Egypt’s credit rating to achieve more progress,” Hassanein affirmed.
Moody’s expected Egypt’s real GDP growth to recover to 4.5 percent year-on-year for the current fiscal year 2015, and then to edge up to around 5 percent six percent over the coming four years, as long as domestic political stability and business environment improvements continue.