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Egypt outlook on sovereign ratings upgraded to ‘stable'
Published in The Saudi Gazette on 21 - 08 - 2009

Moody's Investors Service has Thursday changed the outlook on Egypt's sovereign ratings and ceilings back to stable from negative. This affects Egypt's Ba1 local and foreign currency government bond ratings, its Ba2 country ceiling for foreign currency bank deposits and its Baa2 country ceiling for foreign currency bonds.
“Today's rating action was primarily motivated by the easing of inflation in Egypt since its peak in August 2008, the government's efforts to contain fiscal pressures, and the relative resilience displayed by Egypt's economy and banking system in the face of recent global economic turmoil when compared with rating peers,” said Tristan Cooper, Moody's head analyst for Middle East Sovereigns.
Concern over the adverse social and economic consequences of soaring inflation had previously prompted Moody's to place Egypt's sovereign ratings on negative outlook in mid-2008. Such concerns have been allayed as inflation has receded somewhat and also because the bout of double-digit price growth over the past 18 months does not seem to have caused serious social or fiscal dislocations.
The Egyptian government's wide deficit was contained over the most recent fiscal year (June 2008 to June 2009) at around the previous year's deficit despite considerable upward pressure on expenditures, particularly on wages and subsidies, and the implementation of a stimulus package.
Although the deficit is expected to expand this fiscal year as tax revenues decline, Moody's does not expect this to cause a large jump in the government's debt ratios, assuming that nominal GDP growth stays buoyant.
The government does not face difficulties in financing its wide deficit as local banks, its main creditor, have a large appetite for government paper. In general, Egypt's economy has been less affected to date by the global economic crisis than many rating peers.
This can partly be explained by the country's moderate level of economic openness, solid external position, well-diversified economy, and stable, if rather underdeveloped, banking system that has been restructured in recent years and has limited foreign exposure.
Moody's maintained its stable outlook on Egypt's banking sector.
“Despite today's outlook change to stable, Moody's continues to have credit concerns. Chief among these is the weakness of Egypt's public finances, with a substantially wider fiscal deficit and higher public debt burden than most rating peers,” Cooper pointed out.
“Furthermore, although Egypt's inflation rate has eased, it remains elevated. This, combined with slower growth and rising unemployment, continues to present challenges in light of the country's poor social indicators.” he added.
The last rating action on Egypt was June 23, 2008, when Moody's changed the outlook on Egypt's ratings and country ceilings to negative from stable and lowered the government's local currency bond rating from Baa3 to Ba1.

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