(AFP PHOTO / ANWAR AMRO)
International rating agency Standard and Poor’s have affirmed Egypt’s long term and short-term foreign and local currency sovereign credit ratings, the agency announced 16 May in an official statement, putting the country’s outlook at “stable”.
“The affirmation reflects our view that official donors will continue to provide the Egyptian government sufficient foreign currency funds to manage the country’s short-term fiscal and external financing needs,” the agency said in its statement. “We expect ongoing support from official lenders over the next 12 months as the Egyptian authorities try to address the country’s political and economic challenges.”
The agency added that it expects former Minister of Defence Abdel Fattah Al-Sisi to win the coming presidential elections, which will take place on 26 and 27 May.
“He has run on a platform that includes suppression of the Muslim Brotherhood, a policy that is in line with those of some GCC states,” the agency’s statement read.
It added, however, that if elements of Egyptian society are radicalised by these same policies, the possibilities of “escalating violence” and “feelings of disenfranchisement” among the population might increase.
“If this comes to pass, we believe that Egypt’s political tensions will persist, and structural weaknesses in its fiscal and external accounts will continue,” S&P’s statement noted.
The agency forecasted that Egypt is expected to receive further support funds the Gulf Cooperation Council (GCC) states, however.
During the current fiscal year, the Kingdom of Saudi Arabia, United Arab Emirates and Kuwait have pledged and provided around $15bn, which according to S&P will help the country in avoiding balance-of-payment problems during the coming 12 months.
“In our forecast, Egypt’s net international reserves will likely stabilise at more than two months of current account payments in 2014-2017,” the agency said.”
In March, following a meeting with Prime Minister Ibrahim Mehleb, CBE Governor Hesham Ramez said foreign reserves are “secure and will rise constantly due the revenue increases the country witnessed during the past period.
“Over the same period, we estimate its external debt [net of official reserves and financial sector external assets] will be a relatively modest 23% of current account receipts (CARs) in 2013,” it added.
Estimates of Standard & Poor’s have shown that Egypt’s net external liability position has reached “a much more significant 100% of CARs” in 2013.
Evaluating the government’s finances, S&P argued that they are weak, estimating the annual change in general government nominal debt as an average of 11% of the gross domestic product(GDP) between 2014 and 2017.
The agency noted that it has not factored in any positive impact from the stimulus packages, which were announced in October 2013 and February 2014 with a total worth of 3% of GDP.
Last week, Minister of Planning and International Cooperation told the Daily News Egypt that many of the first stimulus package’s projects are expected to be finalised before 30 June, while the rest will be completed by the end of 2014. The minister pointed out that by the end of April 60% of the first stimulus package projects, which started in November, was completed.
The agency also forecasted that the net general government debt will peak at about 79% of GDP in 2014, a sharp rise compared to 68% in 2012. S&P also mentioned that between 2012 and 2013, the general government interest payment of debts surged from 27% of revenues to 34% of revenues.
“We consider the government's ability to raise revenues or cut spending as limited, particularly given Egypt's shortfall in basic services,” the agency said.
“We also think the government's contingent fiscal liabilities from the financial sector and public enterprises are limited,” S&P added.
Discussing the risks to the government’s medium-term credit standing, the agency said that it is high, adding that it still does not see “a risk of imminent default”.
In May 2013, the international rating agency downgraded Egypt’s long-term rating to CCC+ from B-. The short-term rating also slipped from B to C. Between October 2011 and December 2012, the agency downgraded Egypt’s ratings four consecutive months.
