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The downgrade reflects increased risks to Egypt’s external financing, macroeconomic stability and the trajectory of already-high government debt, the rating agency said.
Recovery in Egypt’s key tourism industry, which had been hammered by the pandemic, has been offset by last year’s surge in energy prices and ongoing rise in global borrowing costs. This has added to the country’s external loans, which quadrupled to over $160 billion in the seven years to 2022.
Economists say that the country has spent much of the borrowed cash on projects that will not quickly generate the foreign currency it needs.
The country’s debt problems have come amid a bruising economic crisis that has triggered a string of currency devaluations and record inflation.
The ratings agency said it expects Egypt to face a significant rise in external debt maturities in fiscal years ending June 2024 and June 2025, from that which ended in June 2023.
Egypt is one of the world’s biggest wheat importers and also relies on imports of other basic foods and fuel.
The rating agency expects receipts from tourism, the Suez Canal and a recovery of remittances to help contain financing needs from larger imports.
The agency also revised its outlook to ‘stable’ from ‘negative’.
It added that the stable outlook reflects that post the presidential elections in December, reforms, slowdown of megaprojects, and exchange rate adjustment will accelerate and likely lead to a larger International Monetary Fund (IMF) programme.
According to a Reuters poll the outbreak of violence in neighbouring Gaza and Israel may further cut into Egypt’s already dimming growth prospects.
“Israel-Hamas war poses significant downside risks to tourism, although we build in some near-term hit,” Fitch said.
In October, fellow ratings agencies Moody’s (NYSE:MCO) and Standard & Poor’s (S&P) both downgraded Egypt’s credit ratings by a notch.
