Credit rating agency S&P Global downgraded Egypt’s long-term foreign and local currency sovereign credit rating from ‘B’ to ‘B-’ while changing its economic outlook from ‘negative’ to ‘stable’, according to a press release issued on 20 October.
S&P cited “recurring delays to the implementation of monetary and structural reforms” which the agency said exacerbated imbalances in the currency market and deteriorated the net foreign asset holdings of banks, among other things.
“We also view the government’s very high debt servicing costs, which largely relate to its domestic debt (70 percent of the total), as a potential challenge to debt sustainability,” the statement added.
Egypt’s short-term sovereign credit rating remained at ‘B’.
Minister of Finance Mohamed Maait said that the government is working to further structural reforms “to respond to internal and external challenges.”
Moody’s, another of the three big credit rating agencies, had downgraded Egypt’s rating from ‘B3’ to ‘Caa1’, its lowest ever from the agency, on 5 October.
S&P expects GDP growth to further slow down in 2024, but market confidence should improve once “the CBE’s long-term strategy for the exchange rate becomes clearer.”
The agency said it could further lower Egypt’s ratings “if the authorities fail to implement the macroeconomic reforms required to reduce Egypt’s economic imbalances and to unlock multilateral and bilateral funding.”
On the other hand, S&P could raise Egypt’s ratings if the government “reduces net government debt levels and gross external financing needs, via an acceleration of reforms that support competitiveness, growth, and fiscal outcomes.”
Egypt has been facing a severe economic crisis due to longstanding structural imbalances and external economic shocks, most recently from the Covid-19 pandemic followed by the Ukraine War. This has led to high inflation rates and an increasing reliance on debt including to service existing debt.
As a result, Egypt is facing challenges in repaying its increasing debt bill and has devalued its currency several times in response to these pressures.