As Egypt proceeds with its economic reforms following some four years of economic crisis, international rating agencies have responded with optimistic positive outlooks.
Fitch Ratings currently has Egypt at B- with a stable outlook, while Moody’s Ratings assigns Egypt a Caa1 with a positive outlook. Standard and Poor has also lifted the country’s credit outlook.
But credit ratings remain unchanged since, according to Fitch, Egypt must prove reforms are lasting before any credit rating action.
Economic woes
The positive outlook is the outcome of Egypt’s emergence from the prolonged economic crisis that engulfed it starting 2020. Before that date, Egypt had a thriving economy, albeit an economic policy that was not above reproach owing to investor-unfriendly regulations, and government and army near-hegemony on projects. The 2020 COVID pandemic and ensuing disruption in global supply chains, the 2022 Ukraine war and rising energy and wheat prices, the US Federal Reserve raising interest rates starting March 2022 and driving hot dollar money out of Egypt, and the 2023 Gaza War which practically wiped off tourism in Egypt and brought on a 50 per cent drop in revenue of the Suez Canal, all worked a devastating effect on Egypt’s economy. A severe dollar shortage crushed the economy, stalling production and much-needed imports of basic goods and industry inputs. This led to devaluation of the Egyptian pound and the rise of a ‘parallel’ market—in the sense of a market parallel to the banks which could no longer provide dollars. In absence of substantial dollar revenue and persistent dollar scarcity, flotation of the currency to eliminate the parallel market was futile: no matter how high the dollar price went against the pound, it would still go higher as long as the demand for dollars continued to far exceed their supply.
Breakthrough
The last week of February 2024, however, came with stunning news of a huge Emirati Egyptian urban investment project in Ras al-Hekma on Egypt’s North Coast, to the tune of USD150 billion over five years, with immediate payment of USD35 billion to Egypt.
Flush with dollars, the Central Bank of Egypt was in a position to float the Egyptian pound, and raise interest rates to contain runaway inflation.
The huge Ras al-Hekma deal was followed by other offers but, more importantly, shrinkage of the dollar gap and the CBE’s reform brought in international loans and grants to Egypt from the International Monetary Fund (IMF), the European Union, and the World Bank.
In March 2024, the IMF approved a USD8 billion 46-month Extended Fund Facility (EFF) arrangement for Egypt, in support of the country’s economic reform. The approval gives Cairo the right to apply for a loan of USD1.2 billion from a separate IMF facility that promotes environmental sustainability. On 30 March, Prime Minister Mostafa Madbouly said that Egypt was set to receive the inaugural instalment of the USD8 billion loan the following week.
EU Egypt strategic partnership
On 17 March, the European Union announced it would provide Egypt with a four-year financial package of easy loans and grants worth 7.4 billion euros, about USD8 billion, to bolster the Egyptian economy. The package involves investments and cooperation on battling terrorism and illegal migration to Europe.
In a summit held in Cairo for the heads of State of Austria, Belgium, Cyprus, Greece, Italy, and the European Commission, relations between Egypt and the EU were raised to Strategic and Comprehensive Partnership. The Strategic Partnership Document identifies the specific areas of cooperation, namely: political relations, macroeconomic stability, sustainable investment and trade, including energy, water, food security and climate change, migration, security, and human capital development.
Also in March, the World Bank declared it intends to provide more than USD6 billion throughout three years “to support Egypt’s development and reform efforts”. The Bank explained that USD3 billion would be allocated to government programmes, whereas the other USD3 billion would go to the private sector.
Noteworthy, however, is that Egypt has affirmed its plan to increase its production, and hence its exports threefold from USD53 billion to USD145 billion within six years under the ongoing economic reform programme.
Watani International
3 April 2024
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