Suez Canal extension will take time to affect positive credit: Moody’s

Doaa Farid
2 Min Read

The Suez Canal expansion will support Egypt’s credit quality through increased current account receipts and government revenue,  research by international credit ratings agency Moody’s outlined on Thursday.

The research added that the degree of support will depend on the acceleration in global trade growth “which seems unlikely to materialise quickly”, Moody’s said. The ratings agency added that it expects limited credit-positive effects for Egypt during the current fiscal year.

The New Suez Canal project, which was inaugurated on 6 August, Is a 35 km extension running parallel to the existing canal. It is part of a wider project to turn the surrounding area into an economic zone of a special nature for manufacturing and logistics.

The cost of the expansion was $8bn, with the Egyptian government successfully collecting $8bn through issuing investment certificates for citizens. Revenues of the Suez Canal are expected to be increased from $5bn per year to $13.2bn by 2023, according to the Egyptian government’s estimation.

In a July report, Moody’s said that the budget for FY 2015/2016, showed a fiscal deficit of 9.9% of GDP, represents a slower fiscal reform than projected by the government’s Medium-Term Macroeconomic Policy Framework and the government’s pre-budget statement for 2016 that estimated a budget deficit of 9.6% of GDP.

The slowdown in fiscal consolidation [reducing the fiscal deficit] is a negative sign, because it will translate into smaller reduction of public debt and keep the government’s gross borrowing needs “precariously high for a longer period”, said the report.

GDP growth is expected to reach 5% during the current FY, compared to 4.2% during FY 2014/2015.

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