The exchange rate of the Egyptian pound fell to more than 50 pounds against the dollar (Shutterstock)

The head of the sovereign rating sector in the Middle East and Africa region at Fitch Agency told Reuters that the huge cash flows witnessed by Egypt, the devaluation of the currency and the raising of interest rates are not enough to modify the country’s credit rating.

Egypt, which is suffering from a prolonged economic crisis linked to a chronic shortage of foreign currency, surprised the markets in February with a $35 billion real estate and tourism development deal with ADQ Holding Company, one of Abu Dhabi’s sovereign wealth funds.

Shortly after the deal was completed, the country allowed the exchange rate to fall to more than 50 pounds to the dollar and raised interest rates by 600 basis points, before agreeing on an expanded $8 billion program with the International Monetary Fund.

Toby Ailes, Head of the Sovereign Ratings Sector for the Middle East and Africa at Fitch Ratings Agency, said that these developments “are already factoring into the rating and its stable outlook.”

The agency lowered Egypt's rating to (B-) in November with a stable outlook (French)

The agency lowered Egypt's rating to (B-) in November, with a stable outlook.

“To think about a positive rating, one of the things we identified was reducing external vulnerabilities,” Ailes explained. “I think that has been achieved in the near term. The question is whether vulnerabilities will re-emerge.”

Fitch is scheduled to review Egypt's credit rating in May.

Ailes believes that it will be too early to determine the course of public finances by this time.

Credit ratings are a major factor in determining countries' borrowing costs.

The stability of the outlook may indicate the possibility of the agency raising Egypt's credit rating in the near to medium term.

Ailes said that devaluing the pound “will have a very strong impact on remittances,” Egypt’s most important source of foreign exchange, which averaged about $30 billion annually between 2020 and 2022.

This may help compensate for income losses resulting from the war on Gaza.

He added that if the exchange rate is not allowed to move flexibly, and if inflation remains high, the gains of the past few weeks could be quickly eroded as happened after the devaluation in 2016.

Fitch is scheduled to review Egypt's credit rating in May (Reuters)

“Some suggest there is already flotation, and that would obviously be positive, because it means there is the ability to absorb shocks that didn't exist before,” Ailes said.

He also pointed out that the debt path in Egypt has become “very harsh,” as the value of interest payments relative to government revenues is approaching 50%, and the debt-to-GDP ratio is approaching 100%.

Ailes explained that controlling inflation, which exceeded 35% in February, may allow interest rates and the cost of debt to be reduced.

Egypt's Central Agency for Public Mobilization and Statistics reported on March 10 that annual consumer price inflation in cities jumped to 35.7% in February from 29.8% in January, driven mainly by rising food and beverage prices.

Source: Reuters