The global rating agency Standard & Poor’s was more pessimistic about Egypt’s financial position than the International Monetary Fund and predicted further depreciation of the local currency.
Bloomberg reports that despite projected net inflows sufficient to cover Egypt’s current account deficit in fiscal year 2026, Standard & Poor’s expects total central bank reserves to average around $32 billion over that period – half the level that expects Egypt from the International Monetary Fund. over the same period, despite an increase in inventories to more than $34 billion in recent months.
S&P also expects the local currency to fall by about 53% by the end of the current fiscal year through June 30, with a slight decline in subsequent years, analysts led by Trevor Cullinan said in an earlier statement.
The rating company downgraded Egypt to B, on par with Nicaragua, Montenegro and Uganda.
According to Standard & Poor’s, “Egyptian funding sources may not be able to meet the high external financing needs” in the current and next fiscal year, which they estimate is about $37 billion.
And she warned that the “lack of progress” in implementing the reforms announced last December increases the risks, as supporters could delay or fail to provide Egypt with the agreed funds, with consequences for imports, inflation, interest rates and the size of the public debt. interest payments.
About 70% of Egypt’s public debt is domestic and denominated in local currency, according to Standard & Poor’s.
It is estimated that the government spends more than a fifth of all income on interest payments, the third largest of the 137 sovereign debt it holds in the world.
Standard & Poor’s is the third major credit rating to take negative action on Egypt in recent months as the economic fallout from the Russian invasion of Ukraine contributed to the country’s worst currency crisis and the highest inflation in years.
In February, Moody’s Investors Service further downgraded Egypt’s debt rating to junk territory following Fitch Ratings’ decision last November to downgrade it from stable to negative.
While Fitch Ratings has rated Egypt one notch higher than Standard & Poor’s, Moody’s is actually lower at B3.
The government pledged to allow a more flexible exchange rate, allowing it to secure a $3 billion deal with the International Monetary Fund. However, the fall of the currency continued after long periods of stability.
Standard & Poor’s said the IMF has a “more optimistic view” on Egypt’s total reserves “with an improvement in the balance of payments and release of program funding”.
But for now, the International Monetary Fund wants Egypt to take more of the sweeping measures it promised before conducting a first review of its aid program, pending deals to privatize state assets and real currency flexibility.
Although the pound has not changed much in the spot market, there has been growing concern among investors that the devaluation of the Egyptian currency will be the fourth since March 2022. The currency has weakened by about 50% over the past year, but is still significantly stronger than black market prices, which indicates the presence of risks.
One of the main reasons the currency has been under pressure lately is because companies are “keeping their earnings in foreign currency given the uncertainty over the value of the Egyptian pound,” S&P said.
Hard-currency-earning industries stick to the dollar, so the banking market has seen “relatively limited availability” of foreign currency, according to S&P.
“Currently, daily movement of the official exchange rate is limited and we understand this is due to limited demand as market participants appear to be reluctant to buy foreign currency while rumors of further devaluation circulate,” S&P said in a statement.
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