S\u00e3o Paulo \u2013 Credit rating agency Moody\u2019s changed its outlook on Egypt\u2019s rating from stable to positive, international news outlets said. The main reason was the progress made in implementing a reform program backed by the International Monetary Fund (IMF) and its consequences to economic growth and finance.<\/p>\n
Egypt\u2019s long-term rating remains B3, which is much lower than investment grade, but the new outlook means a downgrading is very unlikely, Moody\u2019s said in a press release on Tuesday (28). Credit ratings are indications of how safe it is to invest in a country, or the likelihood of default on government debt securities.<\/p>\n
Moody\u2019s said the progress made in reforms affords a degree of financial stability that hadn\u2019t been present earlier on in the decade, and this helps offset the country\u2019s debt refinancing risks. It also said Egypt\u2019s large and diverse economy is a strong suit, while the high debt burden leading to a very high interest burden is a weak spot.<\/p>\n
In 2016, the country entered into an agreement with the IMF providing for a USD 12 billion loan over a three-year period, which required reforms to be put in place. The government has since taken action to balance out its finances and bring in foreign investors, including slashing fuel subsidies and exchange rate flexibility.<\/p>\n
Moody\u2019s also lauded the early signs of a business environment reform, which it said offers the \u201cprospect of a sustainable, inclusive growth path capable of improving competitiveness and absorbing the country’s rapidly expanding labor force.\u201d<\/p>\n
It goes on to say the degree of political stability that has been achieved seems likely to be sustained. \u201cIf sustained, the authorities\u2019 commitment to reform has the potential to impart to the credit profile a degree of resilience to economic and financing shocks, which could support a higher rating notwithstanding.\u201d<\/p>\n
Moody\u2019s believes continued implementation of fiscal reforms \u201coffers the prospect of a return to sustained primary surpluses in the fiscal year ending June 2019, after almost 20 years of persistent deficits. The nature of the reforms is such that government expenditure should become more efficient and predictable through economic and commodity price cycles,\u201d it said.<\/p>\n
The agency expects the reforms and Gross Domestic Product (GDP) growth will mean that \u201cdebt burden, while remaining elevated, will decline to around 82% of GDP by the turn of the decade, from around 86% in fiscal year 2018\/19 and a peak of 103.5% of GDP in fiscal 2017.\u201d<\/p>\n
Translated by Gabriel Pomerancblum<\/strong><\/p>\n