Moody’s Ratings affirmed on Friday Egypt’s long-term foreign and local currency issuer ratings at Caa1, maintaining a Positive Outlook. The agency also affirmed the Caa1 rating for Egypt’s senior unsecured foreign currency bonds and its (P)Caa1 senior unsecured medium-term note program.
The positive trajectory, established in March 2024, reflects the potential sustainability of Egypt’s fiscal and external improvements. Moody’s noted that the government’s commitment to structural reforms is enhancing debt affordability and reducing gross financing needs. The government has maintained significant primary surpluses since FY2024, driven by disciplined spending and improved tax collection—a trend expected to persist.
Fiscal projections and reform measures
Moody’s forecasts a primary surplus averaging 4 percent of GDP in the coming years, up from 3.5 percent in FY2025. This growth is underpinned by several key measures:
Elimination of tax exemptions for state-owned enterprises (SOEs).
Enhanced tax compliance protocols.
Implementation of a new tax package designed to boost revenue by approximately 1 percent of GDP.
Monetary policy and inflation control
The report highlighted the Central Bank of Egypt’s (CBE) adherence to a tight monetary policy and a flexible exchange rate. These efforts successfully cooled consumer price inflation to 13.4 percent in February, a sharp decline from the 33.3 percent average in FY2024.
Crucially, authorities have refrained from intervening in the FX market to prop up the Pound. This restraint helped preserve foreign exchange reserves despite an estimated $8 billion capital outflow triggered by escalating Middle East tensions.
Structural challenges and risks
Despite the optimism, Moody’s warned of persistent structural vulnerabilities:
High debt burden: Government debt remains above 82 percent of GDP, limiting the state’s ability to absorb economic shocks.
Interest costs: Interest payments currently consume nearly two-thirds of government revenue. Moody’s expects these payments to peak at 63 percent of revenue in FY2026 before easing to 57 percent by 2028.
Geopolitical pressures: Rising fuel costs resulting from current regional disruptions continue to pose a threat to disinflation efforts and financing requirements.
Egypt maintains positive outlook despite $8 billion outflow linked to Middle East tensions: Moody’s Egypt Independent.
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