Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Arab Republic of Egypt (long-term local- and foreign-currency issuer and senior unsecured debt ratings: B-/Stable; short-term local- and foreign-currency issuer ratings: S-4/Stable) on 11 November 2024.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

The Arab Republic of Egypt’s B-/Stable ratings are underpinned by the following credit strengths: i) its diversified and resilient economy; ii) robust relations with official creditors and extensive financial and investment assistance; and iii) a track record of structural reforms. At the same time, challenges relate to: i) high external financing needs amid challenging funding conditions and gradually recovering international reserves; ii) large fiscal deficits resulting from a high interest burden and public expenditure rigidities limiting policy flexibility; iii) high public debt relative to GDP; and iv) socio-political challenges.

Egypt benefits from robust financial assistance from bilateral and multilateral partners that have helped to mitigate the impact of external shocks on public and external accounts. Large investments from an Abu Dhabi-based investment company and the renegotiated IMF Extended Fund Facility (EFF) drove the increase in foreign currency liquidity, with net international reserves recovering to USD 46.9bn in October 2024, up from USD 35.1bn in October 2023. The authorities are reportedly working on a large investment on the Red Sea coast, which could further support international reserves. The IMF also notes that there has been progress on the flexibilisation of the exchange rate.

Furthermore, reforms to increase tax revenues, contain public investment and improve public financial management enabled the government to increase the primary surplus between July and September 2024. Egypt’s primary surplus is projected at 2.5% of GDP in 2025, up from 2.0% in 2024 and 1.1% in 2023. On that basis, Egypt is likely to complete the fourth review of the EFF assuming sustained progress on the investor-friendly reform agenda towards a more competitive business environment.

However, delays to advance the state asset divestment programme and the authorities’ plan to renegotiate the EFF targets raises uncertainty about the pace of reform over the medium-term. Despite a higher primary surplus, progress on domestic resources mobilisation remains key to improve fiscal flexibility due to the significant share of public spending allocated to public sector wages and social benefits. Real interest rates turned positive, but inflation remains high (26.5% year-on-year in October 2024), limiting the prospects for lower policy rates and a significant economic rebound. Real GDP growth is projected at 2.7% in 2024 and 3.9% in 2025, below its long-term average of more than 4.5%.

Moreover, Egypt’s high interest burden is a major challenge. Net interest payments are projected to increase from 40% of revenue and 7% of GDP in 2023 to more than 50% of revenue and 10% of GDP on average between 2024 and 2027. This reflects elevated government debt (95.9% of GDP in 2023), a low average debt maturity (3.2 years in 2022/23) and elevated risk premium accounting for still significant macroeconomic imbalances and heightened geopolitical tensions.

Egypt has limited resilience against external shocks on a standalone basis and is exposed to high regional instability. The current account deficit, projected to remain above 6% of GDP in 2025, reflects structural constraints on exports and foreign currency inflows, and the country’s high import dependence, particularly given the recent energy shortfall. Against this backdrop, further clarity and sustained progress in the implementation of the economic reform agenda are necessary to gain greater confidence about the reduction of macroeconomic, fiscal and external imbalances over the coming years.

The Stable Outlook reflect Scope’s view that the risks over the next 12 to 18 months are balanced.

The ratings/outlooks could be upgraded if, individually or collectively: i) the execution of IMF policy conditionality continued, leading to a sustained reduction in external risks; and/or ii) the fiscal outlook improved due to, for example, a material reduction in net interest payments, lower current expenditures, and/or higher domestic resources mobilisation.

The ratings/outlooks could be downgraded if, individually or collectively: i) significant shortfalls in the execution of the reform agenda led to a sustained increase in external risks; and/or ii) the fiscal outlook deteriorated due to, for example, a widening of the budget deficit and/or a further rise in the interest burden challenging the debt servicing capacity.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Thomas Gillet, Director

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