S&P praises the Egyptian government for its handling of the economy

Mohamed Maait, minister of finance, praised the decision of Standard & Poor's (S&P's) to keep Egypt's credit rating at "B" for a second time  while maintaining a stable outlook. The decision was made on October 21, 2022 with Maait saying that this decision reflects the continued confidence of international institutions, especially credit rating institutions, in the stability and solidity of the Egyptian economy and its ability to deal positively with negative external repercussions on its economy. The most important of these is the Russian-Ukrainian war and the negative economic effects that have followed globally, especially the rise in the price of basic commodities such as wheat.

The Egyptian minister of finance said that S&P attributed its decision to maintain a stable outlook to its expectation that the government would continued its commitment to implement economic and structural reforms. It believes the Egyptian government will drive economic growth, supported by an increase in the role of the private sector in economic activity. Hence, analysts at S&P expect the Egyptian economy to achieve strong growth rates in the medium term.

The minister indicated that S&P highlighted in its report the efforts made by the ministry of finance in managing the budget and raising the efficiency of collection and spending to ensure the continuation of achieving financial discipline. This was noticeable during the fiscal year 2021/2022. Maait said that the overall budget deficit decreased to 6.1 per cent of GDP, compared to 6.8 per cent of GDP in the 2020/2021 fiscal year. The ministry of finance achieved a surplus for the fifth consecutive year, amounting to 1.3 per cent of GDP in the last fiscal year.

The minister said that the war in Europe had led to sharp increases in commodity prices and tightened global monetary conditions. This in turn has led to a large capital outflow from emerging markets, including Egypt. However, S&P expects no further capital outflows. But this is not a likely scenario in Egypt, given improved macroeconomic conditions. This would be in addition to increased inflows from the Gulf Cooperation Council (GCC) countries to Egypt, and the Egyptian government's intention to attract an estimated USD 10 billion annually over nearly four years in foreign direct investment.

Ahmed Kjok, deputy minister of finance for financial policies and institutional development, also confirmed that S&P praised Egypt's continued efforts to improve the business-operating environment that supports strong and sustainable growth in the medium-term in Egypt.

Kjok said that S&P praised the government's plan to increase the role of the private sector in economic activity and increase its contribution to total investments. The credit rating agency also said that the state ownership policy document will soon be issued in its final form. It is expected to emphasise the desire of the Egyptian state and its institutions to encourage and attract the private sector to increase its investments and its presence in the Egyptian market, thereby increasing its contribution to economic growth. The government is also working to enhance the environment of fair competition in the Egyptian market by reducing, and simplifying trade and investment procedures in a way that contributes to attracting more local and foreign investments.

Kjok added that S&P could change Egypt's credit rating if economic growth is strong, and if the reform programme attracts more capital flows into the country.  Public debt levels as a percentage of GDP must also decrease and ensure access to sustainable external financing.

He also said that S&P's report commended  the Egyptian government's ability and commitment to maintaining fiscal discipline in the medium term. It will do this by reducing the overall public budget deficit, so that it is below 4 per cent of GDP at the end of the fiscal year 2026/2027. At the same time, it will continue to achieve a primary surplus of up to 2 per cent of GDP. This will be supported by the completion of structural reforms in public finance, the most important of which are: the continuation of the ministry of finance's efforts in digitisation procedures, expanding the tax base, and improving tax administration.