RIYADH: Citing better prospects for debt service, international credit rating agency Moody’s has upheld Egypt’s Caa1 long-term foreign and local currency rating with a positive outlook. The country’s larger foreign exchange reserves and cheaper borrowing costs after the currency’s devaluation and flotation, according to an organisation report, were the main drivers of the move. Countries with low quality and extremely high credit risks receive a Caa1 rating from Moody’s, but the government’s efforts to manage inflation and interest rates are reflected in the optimistic outlook.
The agency claims that Egypt’s high, albeit reducing, debt ratio, extremely low debt affordability in comparison to peers, and consistently high domestic and external financing needs are some of the reasons adversely affecting the credit profile. Egypt’s credit rating is significantly lower than those of its neighbours in the Middle East and North Africa, including the United Arab Emirates (UAE), which was rated Aa2 in November, and Saudi Arabia, which was rated Aa3 with a stable outlook.
“Monetary policy credibility and effectiveness is increasing as the central bank maintains a policy stance consistent with inflation targeting and a floating exchange rate regime,” the Moody’s assessment stated in its explanation of its judgement about Egypt. This should sustain an atmosphere conducive to consistent inflows of foreign currency while enabling policy rates to fall, thus reducing the cost of debt. “However, Egypt’s ability to achieve long-lasting improvements in its fiscal and external positions is still at risk due to credit vulnerabilities reflected in the Caa1 ratings,” it continued.
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