By Doaa Farid
Ratings agency Standard and Poor’s maintained Egypt’s long- and short-term sovereign credit ratings on Egypt at CCC+/C with a “stable outlook” on Tuesday, noting that the source of this reassurance is the pledged financial aid by Gulf countries.
S&P explained in a statement that the stable outlook was based on the recently announced joint aid from Saudi Arabia, Kuwait and the United Arab Emirates worth $ 12bn, which amounts to 4.4% of Egypt’s GDP, with the aim of it avoiding an “external financial crisis.”
The aid from the three Gulf countries, to be delivered in the form of grants, interest-free deposits and fuel and petroleum products, reduces the likelihood that Egypt will face a balance-of-payments crisis.
“We also understand that $3.7bn in prior support from the state of Qatar deposited with the Central Bank of Egypt has been converted into a medium-term obligation of the central government,” the agency stated.
It said: “these funds reduce the pressure on the balance-of-payments and afford officials some time to address Egypt’s economic and political challenges, which was the reason for the downgrade in last May.”
The S&P’s view of Egypt’s creditworthiness has not changed since the ouster of former president Mohamed Morsi.
“We could raise the ratings if Egypt’s political transition strengthens the social contract, and a sustained increase in net international reserves provides evidence of external pressures easing,” it said.
Fakhry El-Feky, the former assistant of the executive director of International Monetary Fund, said that the “stable outlook” means that they will upgrade Egypt’s rating in the next few months. “To reassure this we must have political and security stability,” he said.
He added that Prime Minister Hazem El-Beblawi and Deputy PM Ziad Bahaa El-Din’s status as economists will ensure that they will prioritise the economy in the government.
In May, S&P downgraded Egypt’s long- and short-term sovereign credit ratings to CCC+ and C, from B- and B, as a result of the government’s failure to put a sustainable medium-term strategy to manage the country’s fiscal and external financing needs.
The agency gives the rating of “CCC +” to states and institutions facing a real danger of not being able to repay their dues.