Cairo – Mubasher: The Egyptian pound’s (EGP) free flotation is a positive step for the sovereign's credit profile, said Fitch Ratings in a report on Wednesday.
However, this move will spot social and political risks in a policy environment rife with challenges.
Earlier, the Central Bank of Egypt (CBE) devalued the pound against the US dollar to EGP 17.5 per dollar, compared with a pre-flotation X-rate at EGP 8.78.
The global agency rated the Egyptian sovereign at 'B' with a stable outlook, a Wednesday’s report revealed.
The rating agency expects the International Monetary Fund (IMF) to nod for the $12 billion deal on 11 November, releasing its first tranche of funding.
“IMF funding will support the CBE's stock of foreign reserves (USD19bn at end-October) and boost confidence among economic agents and investors. It may also pave the way for international bond issuance”, the report highlighted.
The rating firm believes that this devaluation has mixed impact on the financial stance in Egypt.
“Public sector external debt is low as a percentage of total public debt, but the weaker currency will increase the size of the debt, and the interest rate rise will push up the interest payment bill yet further”, according to the report.
Moreover, the weaker currency will pressure the government's import costs.
But fuel prices’ increase and the IMF loan would help control spending, although the loans will increased the country debt, the report concluded.
