Fitch affirms Egypt credit rating at B with stable outlook - Economy

Al-Ahram Weekly

12-04-2025

In a recent report, Fitch Ratings said that Egypt's credit rating is underpinned by its relatively large economy and strong growth potential, which are supported by substantial backing from both bilateral and multilateral partners.
The agency noted Egypt's ongoing engagement with the International Monetary Fund (IMF) through an $8 billion Extended Fund Facility, which underpins all of Fitch's economic forecasts for the country.
Persistent structural challenges
Despite these strengths, Egypt continues to face significant structural challenges. Public finances remain weak, with debt interest payments absorbing a substantial share of government revenue.
The country also grapples with substantial external financing needs and volatile commercial financing flows.
High inflation and persistent geopolitical risks further threaten macroeconomic stability.
However, external buffers have been replenished in recent months, bolstered by a surge in foreign investment in the first quarter of 2024, particularly from the Ras El-Hekma project, signalling continued support from the UAE.
As a result, international reserves increased by $12.4 billion since the beginning of 2024, reaching $45.5 billion by the end of March 2025.
The banking sector has shown resilience, with the net foreign asset recovering to a surplus before dipping into a $1.9 billion deficit in February 2025.
This shift, Fitch said, was driven by moderate capital outflows, which in turn helped limit currency depreciation.
Current account deficit set to widen
Looking ahead, Fitch forecasts Egypt's current account deficit will widen slightly in the 2024/25 fiscal year, which ends in June 2025, reaching 5.6 percent of GDP.
It is expected to narrow to 4 percent in 2025/26, supported by a gradual recovery in the energy sector, renewed investment from international energy companies, and access to cheaper gas imports.
Foreign investment outlook improves
On the impact of newly imposed US tariffs, Fitch noted Egypt's limited exposure and relatively low dependency on US economic aid, which helps mitigate certain external risks.
Foreign direct investment (FDI) is projected to rise to $15 billion — or 3.8 percent of GDP — in 2025/26, driven primarily by fresh real estate investments from Gulf Cooperation Council (GCC) countries.
Geopolitical risks cloud outlook
The report cautioned that regional geopolitical tensions remain a key risk, with conflict-related disruptions contributing to a decline in Suez Canal revenues.
Fitch projects these revenues will only partially recover — reaching 60 percent of their 2023 levels by fiscal year 2025/26.
Tourism, however, has shown surprising resilience, with revenues expected to rise by 9 percent in 2025/26, following a 5 percent increase in 2023/24.
Nevertheless, any escalation in regional conflict could moderately impact the sector.
Domestically, Egypt continues to face high inflation, youth unemployment, and governance challenges, raising the risk of social instability.
Nonetheless, the Central Bank of Egypt (CBE) has shown greater flexibility in its exchange rate policy since the currency depreciation of 6 March 2024, resulting in reduced exchange rate volatility.
Budget deficit to widen, despite revenue gains
Fitch expects the general government deficit to widen to 7.4 percent of GDP in 2024/25 due to high debt servicing costs and the absence of one-off revenues seen in the previous year.
While tax revenues have increased — thanks to improved compliance and reduced exemptions — the government is planning additional VAT-focused revenue measures in 2025/26, which could help moderate the deficit.
The report also flagged concerns over off-budget spending and contingent liabilities from the broader public sector.
Fitch, however, also highlighted ongoing uncertainty about the government's commitment to sustained fiscal discipline.
Public debt forecast to decline
Egypt's public debt remains elevated but is projected to fall to 80.4 percent of GDP by the end of fiscal year 2025/26, down from 89.4 percent in the current year. While this marks progress, it remains significantly above the median for countries rated 'B'.
Inflation has sharply declined, dropping to 13.6 percent in March from 24 percent in January.
It is expected to rise slightly to 14 percent by the end of 2024/25, mainly due to further cuts in fuel subsidies.
Fitch anticipates the CBE will begin cutting its key interest rate — currently at 27.25 percent — by the end of 2025/26, easing pressure from debt servicing costs.
The banking sector, supported by strong deposit growth and a low loan-to-deposit ratio, is also positioned for expansion.
Ratings outlook
Fitch outlined several factors that could influence Egypt's future rating.
Downside risks include worsening external finances, increased debt sustainability concerns, and escalating regional conflict.
On the other hand, improvements in external stability, credible fiscal reforms, and progress on structural economic changes could lead to a positive rating action.