On Thursday, Moody’s Investors Service, one of the primary credit rating agencies, downgraded its outlook for Egypt from “stable” to “negative.” The downgrade reflects the increasing risks associated with the continued weakness in the country’s credit situation amid challenges in rebalancing the macroeconomy and the exchange rate.
Despite expectations that ongoing official financial support from the International Monetary Fund (IMF) would enhance Egypt’s debt tolerance, Moody’s stated that “policy actions and external support may be insufficient to prevent a debt restructuring” due to weak debt burden metrics.
In a statement, Moody’s noted that “a significant increase in interest payments and heightened external pressures have complicated the process of macroeconomic adjustment.”
The agency anticipates that Egypt’s track record in implementing fiscal reforms will aid in securing additional financial support from the IMF.
Moody’s affirmed Egypt’s credit rating at “Caa1,” which suggests that obligations are of poor standing and carry very high credit risk.
Egypt is currently struggling with soaring levels of foreign debt and has been severely affected by the war in Gaza, which threatens to disrupt tourism bookings and natural gas imports, as well as recent attacks on ships in the Red Sea.
The country’s external debt has increased, approaching approximately $165 billion, including about $29 billion due for repayment in 2024.
The Egyptian IMF loan program stumbled in December 2022 after Cairo refrained from freely floating its currency or making progress in the sale of state assets.
The IMF deferred the disbursement of around $700 million expected in 2023 but stated in December that discussions were underway to expand the existing $3 billion program due to the economic risks stemming from Israel’s war on Gaza.
Moody’s Investors Service
Moody’s Investors Service is one of the world’s leading credit rating agencies by sales figures and market share and is also the oldest institution to operate in this field. It has representative offices in dozens of countries around the globe.
Moody’s core function is to assess the “creditworthiness” of entities (governments, companies, etc.) seeking financing from the capital markets by issuing bonds.
Moody’s expresses its assessment through regular ratings published to guide investors and inform their decisions on whether to invest in a particular bond. This rating indicates the bond’s quality and the level of associated credit risks.
