Global Arab Network | Egypt - Fitch Rates USD 1.5 bn Eurobonds at 'BB+'

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

Egypt - Fitch Rates USD 1.5 bn Eurobonds at 'BB+'

Global Arab Network - - George Haddad

Friday, 23 April 2010 11:51

Fitch Ratings has assigned the Arab Republic of Egypt's two new Eurobonds, totalling USD1.5bn, Long-term foreign currency ratings of 'BB+'. The ratings are in line with Egypt's LTFC Issuer Default rating (IDR) of 'BB+', which has a Stable Outlook, which was affirmed on 9 December 2009.

The bonds are USD1bn of 5.75% 10-year notes and USD0.5bn of 6.875% 30-year notes.

"Egypt's economy has proved resilient to the global crisis and is now well into recovery mode," says Richard Fox, Head of Middle East and Africa Sovereign Ratings at Fitch. "Its relatively robust performance owes much to the reforms introduced since 2004 and the investment and diversification they have encouraged."

Egypt entered the global recession in fairly good shape, with three years of 7% GDP growth, positive debt dynamics and external indicators comparing well with 'BBB' as well as 'BB' medians. As the global crisis started to affect all Egypt's main foreign currency streams: hydrocarbons, tourism, remittances and Suez Canal fees, growth slowed to 4.7% in 2008/9 but is now on track to reach more than 5% this year, supported by a revival of both domestic and external demand.

Headline inflation, though still in double digits, is declining and will be nearer the core inflation rate - currently 7.1 - by year-end. Monetary and fiscal policies have both been supportive of growth, helped by important fiscal and monetary reforms which have given room for interest rates to fall and for a modest fiscal stimulus.

Strong external indicators are a key support for Egypt's rating. Although a current account deficit has opened up since 2008, it remains well-covered by FDI. International reserves have risen consistently over the past year.

On the downside, fiscal consolidation has come to a halt as the authorities have adopted a more growth-supportive fiscal policy. The deficit and debt burden were essentially unchanged in FY09 (year ending June) after three years which saw the debt ratio fall by 33% of GDP. The FY10 budget sees the deficit widening to 8.4% of GDP but the draft FY11 budget sees a renewed decline. Fitch projects the debt ratio to remain broadly stable. A temporary halt to fiscal consolidation is acceptable, but with gross general government debt above 70% of GDP and net debt of nearly 60%, Egypt's fiscal room for manoeuvre remains limited.

Other key indicators remain weaker than the peer group, demanding continuing reform efforts. The central bank is strengthening its monetary tools but its ability to control inflation remains weak. The banking system has improved, and has not required special support, but still has weaknesses compared to peers. And although the government has had important success improving the business environment, this also compares unfavourably with peers in some respects. Meanwhile, high inflation and elections later in 2010 and in 2011 present constraints on the reforms that can be made in the short-term and are increasing uncertainty.

Global Arab Network

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network