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S&P upgrades Egypt on strong growth, improving external position

S&P Global Ratings upgraded Egypt's long-term foreign- and local-currency sovereign credit ratings to B from B- with a stable outlook, citing the nation's strengthening economy and improving external position.

The rating agency said it revised its growth forecast for Egypt to an annual average of 5.4% over the fiscal years 2018 to 2021 from an average of 4.4% and expects expansion of 5.2% in the fiscal year ending June 30.

"We believe Egypt will experience a more broad-based recovery and a slight move away from a consumption-driven economy toward an increasing contribution from investment and net exports."

S&P noted that exchange rate liberalization and weakening currency helped reduce the nation's large external imbalances and bolster investor confidence, which resulted in higher foreign reserves and smaller current account deficits.

The current account deficit narrowed by 64% year over year to $3.4 billion in the first half of fiscal 2018. S&P said it expects the deficit to fall to 4.0% of GDP in fiscal 2018 from 6.5% in the previous year and further decline to 2.7% by fiscal 2021.

Egypt's net international reserves stood at $44.0 billion at the end of April, compared to $28.6 billion a year prior.

S&P said, however, that the currency depreciation, along with a tight monetary policy by the country's central bank, served to offset, a least in part, gains made on the fiscal front. "We estimate that the general government fiscal deficit will reach 10.1% of GDP in fiscal year 2018, from 10.5% in the previous year, falling to 9.0% in fiscal 2019," the rating agency said.

S&P expects the general government fiscal deficit to decline to 6.8% of GDP by fiscal 2021 and average 8.5% this year through 2021.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.