Weak governance weighs on Egypt’s economic reforms - Fitch

Cairo – Mubasher: The Egyptian economy has recently signalled solid growth, disinflation, smaller current-account deficits, and a rebound in foreign exchange reserve, two officials at Fitch Ratings said.

The depreciation of the Egyptian pound has incentivised the upgrade of outlook on Egypt’s sovereign ratings to positive, senior director and head of Middle East and Africa sovereigns at Fitch Jan Friederich and primary analyst Jermaine Leonard said in an interview to Alborsa News.

In the same vein, the two insiders also lauded the North African nation's economic reforms pursued since late 2016 included the hike of fuel prices within the framework of the ongoing subsidy reforms.

They also noted that $12 billion three-year loan from the International Monetary Fund (IMF) has been “a key institutional support to these reforms.”

The Egyptian government is expected to maintain subsidy reforms by determining a plan for adjusting fuel prices automatically to global energy prices, they said.

The Arab world's most populous country also plans to float major stakes of state-owned companies on the Egyptian Exchange (EGX) via initial public offering (IPOs) programme.

The government IPO scheme aims at enhancing the private sector through reinforcing competition, improving transparency, and fighting corruption, they highlighted, adding that “Egypt’s weak governance – as measured by the World Bank governance indicators- will make these reforms difficult”.

They also pointed out that the Arab country’s public finances will remain as “a key weakness” of its credit profile, noting that the trend is positive as the budget deficit and government debt remarkably improved in the previous fiscal year in line with expectations.

Egypt is targeting a budget deficit of 8.4% of gross domestic product (GDP) in 2019, and a 2% of GDP, while Fitch projects budget deficit and primary surplus of 8.8% and 1.6% of GDP, respectively, and a primary surplus of 2% of GDP, they said.

Furthermore, the hike in foreign exchange reserves, which hit $44 billion in June, was bolstered by cutting current account deficit driven by higher tourist remittances and non-oil export proceeds, they highlighted.

In August, Fitch Ratings affirmed Egypt's long-term foreign currency Issuer Default Rating (IDR) at 'B' with a positive outlook.

Egypt’s gross domestic product (GDP) grew to 5.2% in fiscal year 2017/2018 on the back of improved tourism, construction and gas extraction, according to a report by Fitch Ratings.

egypt's inflation fell to 11.5% year-on-year in May, after averaging 29.5% in 2017, while it rose to 14.4% in June following further subsidy reforms ahead of 2019, the agency indicated.

Mubasher Contribution Time: 04-Sep-2018 10:53 (GMT)
Mubasher Last Update Time: 04-Sep-2018 11:08 (GMT)