The rating agency confirmed the rating despite the disruptive impact of covid-19 on the country’s tourism and exports, in addition to the elevated external debt.
S&P expects Egypt to meet upcoming payments thanks to its foreign reserves stockpile and access to international debt markets despite high external debt on the back of lower foreign inflows.
“We expect that Egypt’s foreign exchange reserves and access to domestic and external debt markets will allow it to cover higher external financing needs and coming maturities,” S&P said.
The agency noted that debt pressure will begin to dissipate in 2022 when the economic recovery begins to pick up steam.
S&P expects external and government debt metrics to deteriorate during the current fiscal year, resulted from pressures on the country’s key sources of hard currency, “followed by gradual improvement.”
The pain will continue for tourism and Suez Canal receipts — two of the country’s biggest sources of hard currency, S&P said, forecasting tourism revenues to recover to pre-pandemic levels in 2023.
Furthermore, foreign direct investments (FDI) inflows continue to be weak, representing 1.4% of the country’s gross domestic product (GDP) during the fiscal year (FY) 2020/2021.
The agency sees the FDI-to-GDP ratio recovering again to 2.0% in FY 2021/2022, before slipping 0.1% points over each of the following two fiscal years.
As regards remittance flows, they will remain high in the coming months.
S&P expects the Egyptian economy to grow by 4.8% in 2022 and by 5.4% in 2023 as a result of higher public and private sector investment as the country emerges from the pandemic.
The agency also expects lower domestic interest rates to encourage the government to issue bonds with longer tenures and reduce its rollover risks.
In April, the International Monetary Fund (IMF) raised its economic growth projections for Egypt in fiscal year (FY) 2021/2022 to 5.7% and 2.5% in FY2020/2021.
