United Arab Emirates $35bn Investment in Egypt to Drive Growth
The United Arab Emirates (UAE) record-setting $35 billion investment in Egypt, which is about 10% of gross domestic product (GDP), has provided credit backstop for the country, Moody’s said in a review note.
The huge investment playbook by the Emirates would be credit positive for the country’s rating while analysts said the move would reset Egyptian economy.
Egyptian government has stepped up on efforts to drive growth amidst global economic uncertainties and tight external borrowing markets.
The country has seen multilateral lenders supports. Debt has increased with loans from the International Monetary Fund (IMF) with request to devalued local currency.
Post pandemic foreign portfolio exits from Egypt had drained financial markets capacity to boost growth – with inflation and interest rates trending higher.
UAE launched investment in Egypt between March and May 2024 for the Ras El-Hekma land development, Moody’s said in rating review..
The investment package includes $11 billion short-term deposit conversion at the central bank of Egypt and $24 billion in fresh FDI inflows deposited in ADQ’s accounts at Egyptian commercial banks, Moody’s said.
Egypt’s liquid foreign-exchange (FX) reserves, that is gross reserves minus gold minus SDR, increased to $36.3 billion in July 2024 from about $27 billion in February.
The new inflows helped Egypt to close the external financing gap.
Moody’s analysts said they had estimated at $15 billion until fiscal 2026, as well as $7 billion in import backlogs.
In addition, the review note said Egyptian monetary system’s net foreign assets increased to $13 billion in June from -$22 billion in February, also reflecting renewed portfolio and remittance inflows following the removal of the parallel exchange rate on 6 March.
The country’s domestic borrowing costs remain elevated as reflected in short-term yields at 29.6% in August, weighing on debt affordability as measured by the interest to revenue ratio at close to 50% at the end of fiscal 2024, and fueling refinancing risk.
“We expect continued primary surpluses to help reduce the debt to GDP ratio to about 87% at the end of fiscal 2025 from an estimated 93% in fiscal 2024”, Moody’s stated.
Analysts noted Egyptian exposure to geopolitical disruptions especially in the Red Sea remains a credit weakness.
Moody’s said Egypt’s “a3” economic strength reflects its large and diversified economy with solid trend growth, conditional on continued implementation of business environment reforms to incentivize domestic and foreign private sector investment and export.
The global ratings agency added that Egypt’s “b2” institutions and governance strength reflects a growing track record of completed economic and fiscal reforms against a history of ineffective macro and exchange rate management that have increased Egypt’s shock exposure and led to the emergence of acute FX shortages over the past decade.
It also said Egypt’s “ca” fiscal strength captures the high interest bill that weighs on debt affordability, and the high debt to GDP ratio at over 90% at the end of fiscal 2024. #United Arab Emirates $35bn Investment in Egypt to Drive Growth
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