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What prompted Standard & Poor’s to lower Egypt’s credit rating…and how did the government respond to it?


Global rating agency Standard & Poor’s announced that it reduced Egypt’s long-term sovereign rating to “B-” from “B”.

Reasons for lowering Egypt’s credit rating:

But what were the reasons that led Standard & Poor’s to lower Egypt’s credit rating?

According to an official statement from the agency, as a result of the repeated delays in implementing monetary and structural reforms in the country in addition to the widening size of the financing gap as a result of the unavailability of the dollar and the delayed liberalization of the exchange rate.
Standard & Poor’s also expected inflationary pressures to remain high as we expect further weakness in the exchange rate, and due to the foreign currency crisis, it expects GDP growth to slow further in fiscal year 2024.

How did the government respond to the Standard & Poor’s report:

Dr. Mohamed Maait, Minister of Finance, confirmed that we are working to achieve more structural reforms and measures during the coming period. To deal with the internal and external economic challenges, especially those mentioned in the Standard & Poor’s report, which decided to reduce Egypt’s sovereign credit rating in local and foreign currencies from “B” to “B-” with a stable outlook in the long term, and to fix the sovereign credit rating at The short term is at “B”.
The minister added that Standard & Poor’s, despite the difficulties that the Egyptian economy is still facing, as a result of the global inflationary wave, resulting from geopolitical tensions, and its downgrading of the rating in the long term, based its recent decision to change the future outlook from negative to stable, and also to stabilize the rating. “Short-term”, given the important structural reforms that the Egyptian government was able to undertake recently that contributed to achieving financial discipline, explaining that we succeeded, during the fiscal year 2022/2023, in dealing in a balanced manner with all the current variables and challenges on the global and internal arenas, including a rise in rates. Inflation, interest rates, and a decline in the value of the local currency against the dollar. A primary surplus of 1.63% of the domestic product was achieved compared to a primary surplus of 1.3% of the domestic product in the fiscal year 2021/2022. The total budget deficit reached 6% of the domestic product compared to 6. 1% during the fiscal year 2021/2022
The Minister indicated that a strong growth in tax revenues by 27.5% had been achieved as a result of mechanization efforts, improving tax administration, and combating tax evasion and avoidance. Standard & Poor’s expected financial discipline to continue to be achieved by continuing to implement procedures to mechanize the tax system, in addition to efforts The government will rationalize expenditures during the fiscal year 2023/2024, ensuring the achievement of an initial surplus of 2.5% of the domestic product.
The Minister confirmed that legal amendments have been approved that allow the cancellation of tax and customs exemptions on economic and investment activities of state-owned entities and companies, which leads to enhancing fair competition in the Egyptian market, within the framework of the state’s efforts to empower the private sector.
The minister indicated that state exit deals worth $2.5 billion were implemented within the “offerings” program during the first quarter of the current fiscal year, which helps increase foreign exchange flows and provides a portion of the foreign financing required to cover the needs of the Egyptian economy, in addition to continuing… Achieving a primary surplus and growing tax revenues, explaining that Standard & Poor’s expected the government to continue implementing more reform measures during the coming period within the economic reform program.
The minister added that Standard & Poor’s explained in the context of its report that it may raise Egypt’s sovereign rating if the ability to attract more foreign currency flows to the Egyptian economy is increased as additional resources, which can be achieved by accelerating the “offerings” program during the coming period. ; This enhances the ability of the Egyptian state to cover its financing and external needs during the next two years, and also contributes to reducing the need for external financing, and thus reducing the debt service bill, in a way that helps increase the confidence of investors and institutions in the ability of the Egyptian economy to deal with external challenges, explaining The continued fiscal discipline and ability to pay tax revenue growth rates were praised by Standard & Poor’s experts.
Ahmed Kjouk, Deputy Minister for Financial Policies and Institutional Development, confirmed that we are working to advance efforts to enhance the role of the private sector and increase its contributions to economic activity by implementing the measures and structural reforms required to improve the business environment, increase competition, and enhance competitive neutrality in the Egyptian market. In order to achieve strong and sustainable growth rates driven mainly by the private sector, he pointed out the combined efforts of all state agencies to encourage and attract private sector investments, including foreign direct investments, and to push the export sector and productive activities.

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