Cairo – Mubasher: Moody's Investors Service has placed the government of Egypt's ‘B3’ long-term foreign- and local-currency issuer ratings on review for downgrade, which reflects the sovereign's increasing liquidity and debt affordability risks according to the agency.

Prior to this rating action, the ratings were ‘B3’ and the outlook was ‘Stable’ as announced in February 2023.

Furthermore, the ratings agency placed on review for downgrade Egypt's ‘B3’ foreign currency senior unsecured ratings and its ‘(P)B3’ foreign currency senior unsecured MTN programme rating.

This is in addition to a review for downgrade the ‘(P)B3’ senior unsecured MTN programme rating of the Egyptian Financial Corporation for Sovereign Taskeek Sukuk company and its ‘B3’ senior unsecured rating which are “ultimately the obligation of the Government of Egypt,” in Moody's view.

The state-owned asset sale strategy which is a key component of the 46-month International Monetary Fund (IMF) programme that started in December 2022 witnessed slower than anticipated progress that risks undermining Egypt's financing plans, weakening the sovereign's foreign exchange liquidity, and eroding confidence in the currency.

Moody’s stated that the review period will focus on the Egyptian government's ability to finalise the targeted $2 billion in asset sales necessary to meet the IMF programme's financing targets for the current fiscal year that will end on 30 June 2023. The review process will also demonstrate the viability of the IMF programme's external funding strategy that relies significantly on asset sales.

The agency added: “The review period will also focus on authorities' ability to bolster net international reserves as per quantitative IMF programme targets over a three-month period and support confidence in the currency.”

In Moody’s view, the country ceilings remain unchanged at ‘Ba3’ for the local-currency ceiling and ‘B2’ for the foreign-currency ceiling. It added: “Potential risks of transfer and convertibility restrictions under scenarios of intensifying stress are mitigated by the agreed shift to a flexible exchange rate regime and the removal of letters of credit requirements that supports a gradual rebalancing of external accounts.”

Moody’s review for downgrade comes a few days after Fitch Ratings downgraded Egypt's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to 'B' from 'B+' with a ‘Negative’ outlook.

In Fitch's view, which was announced on 5 May, external financing risk increased due to several factors; high external financing requirements, constrained external financing conditions, and the sensitivity of Egypt's broader financing plan to investor sentiment.

“All this comes against a background of high uncertainty on the exchange-rate trajectory, and reduced external liquidity buffers,” Fitch stated, adding: “We see a risk that a further delayed transition to a flexible exchange rate will further undermine confidence, and, potentially, delay the IMF programme.”

Fitch noted that their rating action captures a marked deterioration of public debt metrics, including a renewed deterioration in government interest costs/revenue, which would put medium-term debt sustainability at risk if not reversed.