Mubasher: Egypt's fiscal reform momentums support its B3 rating and stable outlook amid the current serious economic challenges like high unemployment rates, said Moody's Investor's Service in a report published this week, expecting economic growth to be predominantly supported by public and private investments.
"Although still below pre-revolution levels, economic growth has started to pick up, and investor sentiment has improved. We also expect that high fiscal deficits and government debt levels will gradually reduce. The domestic market continues to provide a sizable funding base for the government," says Steffen Dyck, a Senior Credit Officer at Moody's.
However, negative net export growth contribution will remain a sign of the country's growth profile for the upcoming years due to the expected increase in investment, stronger development of capital goods, as well as weak global demand for Egypt's exports.
Financial aids from GCC countries have helped stabilize the international reserves and balance of payments. With all scenarios of lower oil prices for longer, the rating agency would expect support for Egypt from these countries in times of stress.
The government's key credit weakness, Moody's noted, is its very large government financing needs of more than 50% of GDP , forecasting fiscal deficits to narrow only gradually and general government debt to be left at elevated levels.
The report highlighted that Egypt's inflation rose to more than 16% in August 2016, but will likely decline gradually, posing macroeconomic risks and keeping government funding cost high. But more external vulnerabilities are to be mitigated on low levels of foreign currency and government debt.
