S&P raises Egypt’s out­look to pos­i­tive from sta­ble

The Daily News Egypt - - Front Page - By Mo­hamed Samir

S&P Global Rat­ings on Fri­day re­vised Egypt’s out­look to pos­i­tive from sta­ble, main­tain­ing the “B-/B” long- and short-term foreign and local cur­rency sov­er­eign credit rat­ings.

Ac­cord­ing to the re­port pub­lished by S&P, the re­vised out­look re­flects the po­ten­tial of rais­ing the rat­ing next year, if struc­tural re­forms that sup­port in­vest­ment, growth, and de­crease in­fla­tion con­tinue.

The flota­tion of the cur­rency has con­trolled foreign cur­rency short­ages and increased the com­pet­i­tive­ness of man­u­fac­tur­ing and tourism while also lead­ing to an in­crease in Egypt’s foreign cur­rency re­serves. How­ever, flota­tion, in ad­di­tion to sub­sidy cuts, and VAT, are lead­ing to soar­ing in­fla­tion, the state­ment in­di­cates.

S&P projects that in­fla­tion will grad­u­ally de­scend over the next years and that fur­ther de­liv­ery of on­go­ing eco­nomic and fis­cal re­forms will sup­port rising busi­ness con­fi­dence and sus­tain cap­i­tal in­flows.

How­ever, S&P main­tained the B- rat­ing due to wide fis­cal and ex­ter­nal deficits, high pub­lic debt, and low in­come lev­els.The state­ment ex­plains that as a re­sult of the larger than expected cur­rency de­pre­ci­a­tion, and the in­ter­est rate hikes by the Cen­tral Bank of Egypt (CBE), debt has increased, peak­ing at 103% of GDP in the fis­cal year (FY) 2017.

The re­port es­ti­mates Egypt’s GDP growth in FY 2017 at 4.2%, and fore­cast that av­er­age growth over FY 2018, 2019, 2020 to in­crease to 4.4%, rising from their pre­vi­ous es­ti­mate of 3.8%,sup­ported by on­go­ing im­prove­ment on the ex­ter­nal front, re­flected by rising foreign di­rect in­vest­ment (FDI), remittances from Egyp­tians work­ing abroad, and a steadily de­clin­ing en­ergy deficit as new nat­u­ral gas pro­duc­tion be­gins.

More­over, the re­port in­di­cates that the im­ple­men­ta­tion of the new nat­u­ral gas law would boost growth, and in­crease the com­pet­i­tive­ness of the en­ergy sec­tor by al­low­ing the pri­vate sec­tor to sup­ply gas di­rectly to end users, com­pet­ing with the state-owned com­pany, EGAS. Gas mar­ket lib­er­al­i­sa­tion, in ad­di­tion to the re­duc­tion in ar­rears to oil com­pa­nies, would al­low more in­vest­ment into ex­plo­ration and pro­duc­tion of gas, and al­le­vi­ate fuel short­ages.

S&P fore­cast that po­lit­i­cal sta­bil­ity will con­tinue un­der Pres­i­dent Abdel Fat­tah Al-Sisi, and rule out any sig­nif­i­cant up­heaval or pol­icy changes in the run-up to the pres­i­den­tial elec­tions in early 2018.

How­ever, the so­cio-po­lit­i­cal en­vi­ron­ment in Egypt re­mains frag­ile. So­cial dis­con­tent, due to the increased cost of liv­ing, re­mains a risk to the fis­cal con­sol­i­da­tion pro­gram and eco­nomic re­forms, the re­port in­di­cates.

Mean­while, se­cu­rity threats have mostly re­mained con­tained to North Si­nai be­tween the Egyp­tian se­cu­rity forces and a mil­i­tant group af­fil­i­ated with ISIS. How­ever, there have also re­cently been some tar­geted at­tacks on po­lice and mil­i­tary forces in Egypt’s main­land. S&P be­lieves that po­ten­tial ter­ror­ist in­ci­dents af­fect­ing civil­ians or tourists could sig­nif­i­cantly af­fect the re­cov­ery in tourism and dampen in­vestor sen­ti­ment.

The re­port con­cludes that Egypt’s fis­cal tra­jec­tory re­mains on a grad­ual con­sol­i­dat­ing trend, and es­ti­mates Egypt’s gen­eral gov­ern­ment fis­cal deficit to de­crease to 8.2% of GDP by FY 2020. S&P fore­cast that the CBE will slightly lower its pol­icy rates start­ing in 2018, as a re­sult of the de­cel­er­at­ing growth of pri­vate con­sump­tion and the gov­ern­ment’s high debt bur­den.

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