S&P Affirms Egypt's Credit Rating at "B-/B", Revised Outlook to Stable from Positive

S&P Global Ratings affirmed Egypt's credit rating at "B-/B" and revised its outlook to stable from positive.

The agency said in a report, on Friday, that this stable outlook balances Egypt's commitment to fiscal and economic reforms with its impact on declining global growth and the potential for volatility in external financing conditions.

The agency added that recent steps related to US tariffs have caused significant volatility in global markets. Given Egypt's twin fiscal and external deficits, high overall borrowing requirements, and high cost of debt, the new global shock prompted the agency to revise its outlook on Egypt's long-term sovereign credit rating.

• Positive means that a rating may be raised.

• Negative means that a rating may be lowered.

• Stable means that a rating is not likely to change.

• Developing means a rating may be raised or lowered.

• N.M. means not meaningful.

The US administration imposed new tariffs on goods imported from nearly all countries worldwide on April 2. The tariffs exceeded expectations in size and scope, with uncertain consequences for global growth and financial markets, according to the agency.

Later, the US administration halted the increase in tariffs on all countries except China on April 9, but maintained a minimum tariff of 10% for all countries.

The agency stated that Egypt's government debt and the cost of debt remain high. Fiscal consolidation is expected to proceed slowly, especially in light of current global pressures.

It stated that the Central Bank's tightening of interest rates in March 2024 to 27.25%, along with the liberalization of the exchange rate, led to an increase in the prices of domestic treasury bills and bonds, increasing the already high government debt service costs on Egypt's local currency debt stock, most of which is issued with short maturities.

It added that the ratio of government interest expenditures to government revenues is projected to reach 58% in fiscal year 2025 (ending June 30, 2025), and will begin to decline starting in fiscal year 2026, reaching 45% of GDP in fiscal year 2028.

She continued, "Under global conditions, foreign portfolio investors in the local bond market may also choose to take risk-free investment positions, leading to portfolio outflows, which will increase pressure on local currency bond markets. However, Egypt has implemented a series of reforms since liberalizing its exchange rate regime in March 2024."

S&P Global said that the United States imposed a minimum tariff of 10% on Egyptian exports to the country. This rate, while substantial, is the lowest "liberation day" tariff rate imposed on countries and is significantly lower than those imposed (and currently postponed) on South Africa and several East Asian manufacturing hubs such as Vietnam and Cambodia.

It added that Egypt's dependence on its commodity exports to the United States is relatively low. In 2023, Egypt's exports to the United States amounted to $1.95 billion, making it its fifth-largest trading partner, although the United States still represents less than 6% of its commodity exports and exports to it represent less than 0.5% of GDP.

Tariffs may affect commodity exports to the United States, including textiles and carpets, iron and steel, vegetables, and glass, but these still represent a small portion of Egypt's total exports, according to the agency.

The agency stated, "However, the secondary effects of tariff barriers on other countries globally, along with market volatility, are likely to have a negative impact on global financing conditions, as well as on emerging markets, such as Egypt."

It pointed out that lower global oil and hydrocarbon prices are expected to partially alleviate these pressures, given that Egypt is currently a net importer of hydrocarbons.