Why Fitch's Revision of Egypt's Outlook to Positive Matters?

Fitch Ratings Agency raised its outlook for Egypt's credit rating to "positive" from "stable", supported by a decline in external financing risks in the near term.

The credit rating agency indicated that its decision came against the backdrop of a “significantly reduced risk of external financing in the near term” due to the Ras al-Hekma project with the Emirates, the transition to a flexible exchange rate policy, tightening monetary policy, as well as additional financing from international financial institutions and the return of non-profit flows. Residents to the local debt market.

Fitch, the global credit rating agency, expected Egypt's total foreign exchange reserves to rise by $16.2 billion in the current fiscal year, which ends next June, to reach $49.7 billion, thanks to the abundance of foreign exchange resources and promises of confidence in the pound after the sustainable liberalization of the exchange rate.

At the same time, the agency expected in its report on Egypt that foreign exchange reserves would continue to rise further to record $53.3 billion by the fiscal year 2024-2025 - which begins next July - covering the equivalent of 5.6 months of current external payments, which is higher than “B” average of 4.1 months.

Egypt's foreign exchange reserves jumped by more than $5 billion during last March to record about $40.36 billion, according to Central Bank of Egypt (CBE) data issued earlier.

The agency added in its report on Egypt that the re-entry of remittances from Egyptians working abroad officially into banks leads to increased confidence in the exchange rate in reducing the expected current account deficit to 2.3% of the gross domestic product in the fiscal year 2025.

The report explained that the agreement concluded between Egypt and the United Arab Emirates, which reached a value of $35 billion to develop Ras El Hekma, came in order to alleviate pressures on external liquidity, which facilitated adjusting the exchange rate, as this would help enhance the International Monetary Fund’s vision for the Egyptian economy, as it explained. 

The agency issued a statement that the deal will open the door to additional foreign financing for the Egyptian state.

This praise was followed by Moody’s announcing that it was amending Egypt’s credit rating, after it changed its outlook for the economy to “positive,” at a CAA1 rating.

This amendment came to Moody's regarding a future outlook for Egypt's economy, hours after the Institute of International Finance (IIF) expected the value of the Egyptian currency to rise to the level of 42.5 pounds against the dollar in the next fiscal year 2024/25, at a level lower than the 49.57 pounds that is currently circulating officially, according to data from the CBE.

Goldman Sachs Bank adjusted the future expectations of the Egyptian state budget from a deficit of about $13 billion to a financing surplus of more than $26 billion over the next four years. It also expected Egypt’s foreign exchange reserves to rise to more than $60 billion by the end of the year 2027, as the Investment Bank said that the major change in its expectations came after the announcement of the Ras El Hekma deal that Egypt signed with the UAE, in addition to the announcement of a new agreement with the IMF.