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The rating agency revealed the key drivers behind the positive outlook are reduced external vulnerability. Egypt has seen a significant reduction in near-term external financing risks. This is attributed to the Ras El-Hikma deal with the United Arab Emirates (UAE).
Fitch Ratings has revised Egypt’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) outlook from Stable to Positive. Analysts interpret this as a nod to Egypt’s strengthened economic resilience and reduced external vulnerabilities. The IDR is at ‘B-‘.
The rating agency revealed the key drivers behind the positive outlook are reduced external vulnerability. Egypt has seen a significant reduction in near-term external financing risks. This is attributed to the Ras El-Hikma deal with the United Arab Emirates (UAE). Also, the country has adopted a flexible exchange rate, and tighter monetary policies, which have unlocked additional financing from international financial institutions (IFI) and led to a resurgence in non-resident inflows to the domestic debt market.
Fitch also referred to the surge in Foreign Direct Investment (FDI) resulting from the Ras El-Hikma deal, valued at US$35 billion currency inflows. Of this, substantial funds are allocated to the Ministry of Finance. A portion of existing UAE foreign currency deposits has been converted to local currency deposits, easing Egypt’s external debt burden.
According to Fitch, Egypt has witnessed a significant influx of foreign capital, with the IMF Extended Fund Facility (EFF) receiving a US$ 5 billion augmentation and the approval of a three-year EU support package. Non-resident holdings of domestic debt have also surged, contributing to a notable reduction in the net foreign liability position of the Central Bank of Egypt (CBE) and banks.
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Fitch forecasts a substantial increase in gross FX reserves, reaching USD 49.7 billion by the end of fiscal year 2024. This rise, coupled with recovering remittances and a narrowing current account deficit, underscores Egypt’s improved external financial position.
