Standard & Poor’s Ratings Services affirmed its ‘B-/B’ long- and short-term foreign and local currency sovereign credit ratings on the Arab Republic of Egypt. The outlook is stable.
The affirmation reflects our view that Egypt’s political landscape has begun to stabilize following a fairly smooth electoral process and a subsequent improvement in the security situation, alongside the implementation of a series of economic reform measures, Business Intelligence Mideast reported Sunday.
In addition, given Egypt’s important geopolitical status, we expect that official donors will continue to provide the Egyptian government with sufficient foreign funds (and oil supplies) to manage the country’s short-term fiscal and external financing needs.
As stability has improved, growth has seen a mild uptick. The financial year runs from July to June and real GDP grew by 3.7% year-on-year in the last quarter (April-June) of the 2013/2014 financial year, up from 2.5% in the previous quarter.
However, owing to low growth in the first half of the year, economic output in FY2014 averaged only 2.2%. Although stimulus packages in late 2013 and early 2014 supported the economy, tourism and the extractive industries suffered, hitting growth rates.
The government plans to boost the economy further by unveiling a number of projects at an international investor conference scheduled in Sharm-el-Sheikh for March 2015. It has also begun to assist Egypt General Petroleum Corp. in paying off its existing arrears. Combined with the sale of exploration licenses, this should help to improve economic prospects.
We forecast that GDP growth will improve to an average of 3.2% between 2014-2017, and that GDP per capita will grow by 1.5% on average.
The government’s target is to cut the fiscal deficit to 10.5% of GDP in FY2015 from the 12.8% recorded in June 2014.
