Fitch Affirms Egypt ‘B’ Ratings, Outlook Accorded as Stable
Fitch Ratings has affirmed Egypt’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’, with a stable outlook. This means the Egyptian government faces a material default risk regarding its foreign currency financial obligations. Despite this, there is still a limited margin of safety.
The ratings revealed that the capacity of government to continue making payments is vulnerable, especially if the business and economic environment deteriorates.
According to Fitch, the rating is supported by Egypt’s relatively large economy, fairly high potential gross domestic product (GDP) growth, and strong support from bilateral and multilateral partners.
The rating note stated that these factors are balanced by weak public finances, including exceptionally high debt interest/revenue, sizeable external financing needs, a record of volatile commercial financing flows, high inflation, and geopolitical risk.
Gross international reserves rose USD2.1 billion in 9M25, to USD47.0 billion. The net foreign asset (NFA) position of the Central Bank of Egypt is lower, at USD10.7 billion in August, and broadly stable this year.
The NFA position of the banking sector also improved, by USD13.7 billion, in 8M25. This follows the sharper recovery in external buffers in 1H24 precipitated by the Ras El-Hekma foreign investment, which also underlined support from Gulf Cooperation Council (GCC) partners.
Fitch forecasts gross international reserves will end FY27 (to June 2027) at 4.2 months of current external payments, from 4.4 at end-FY25, close to the ‘B’ median of 4.3 months.
“Our projection for broad stability in external finances partly reflects a steady narrowing of the current account deficit to 2.8% of GDP in FY27, following the 1.2pp improvement in FY25 to 4.2% of GDP.
“This is driven by robust expansion of remittances (which surged 66% in FY25) and tourism, offsetting a widening trade deficit. We expect a gradual recovery in the depressed energy balance, helped by a moderate resumption of investment by international oil companies”.
Egypt’s FDI is forecast to pick up to average USD15.5 billion in FY26-FY27, from USD13.2 billion in FY25, partly due to new GCC real estate investment.
Ratings analysts said rhere has been no significant divergence between the official and parallel exchange rates since their unification in March 2024, and there are no reported FX backlogs.
While FX demand measures likely contribute to very low exchange rate volatility, rating analysts do not consider significant currency misalignment has resulted.
The main economic impact of regional conflict is the 59% collapse in Suez Canal receipts since FY23, to USD3.6 billion in FY25, which we project will slowly recover to USD5.5 billion in FY27. Tourism revenue has been resilient, up 16% in FY25, and Egypt has a low direct exposure to US tariffs.
“We consider the risk from an escalation of tensions with Israel has increased only moderately over recent months, and energy collaboration continues to progress”.
Domestically, weak governance and high youth unemployment pose a lingering risk of greater social unrest and, together with the widespread role of the military, weigh on economic reform prospects.
Ratings analysts forecast that the general government deficit will be broadly flat in FY26, at 7.5% of GDP, as strong revenue and contained capex offset a further rise in debt interest.
Egypt’s tax revenue rose by 35% in FY25, helped by greater digitalisation, reduced bureaucracy and a tax amnesty boosting formalisation.
Fitch assumes that the tax/GDP ratio will rise by 0.8pp in FY26, below the government plan of 1pp. “We project the general government deficit will narrow to 6.5% of GDP in FY27, due to moderating debt interest costs, and further tax measures, although still more than double the ‘B’ median of 3%”.
Despite progress to better monitor and contain off-budget spending, sizeable contingent liability risk remains from Egypt’s large and opaque broader public sector.
While the government reports fiscal performance at an expanded perimeter incorporating 59 economic entities (which approximately doubles revenue and expenditure and almost halves debt interest/revenue), these have yet to be included in the general government budget.
The cap set on overall public investment in FY25, of EGP 1 trillion, was met. A new limit of EGP 1.16 trillion has been agreed for FY26, although Fitch said it maintains restraint over a longer period, which could prove politically difficult.
Fitch forecasts general government debt will fall by about 4pp in FY25-FY27, to 77% of GDP, still well above the ‘B’ median of 50.6%. “Our projections incorporate debt-increasing, stock-flow adjustments averaging 1.5% of GDP in FY26-FY27 due to Egypt’s record of large off-budget spending.
“Given that the average maturity of domestic debt is below two years, our forecast for large policy interest rate cuts quickly feeds through to a fall in debt interest/revenue, to 40% in FY29 from 64% in FY26, but remaining far above the peer group.”
Inflation fell to 11.7% in September, from 26.5% a year earlier, due to large base effects, decelerating food prices, greater exchange rate stability and tight monetary policy.
Fitch forecasts that inflation will average 12.3% in FY26, reflecting better anchored inflation expectations but more sticky services inflation and administered prices’ pressure, falling to 10.4% in FY27, about double the ‘B’ median of 5%.
Ratings analysts project the policy interest rate is cut from 21.5% to a level consistent with a real rate of near 4% by FY27.
Real GDP growth accelerated to 4.4% in FY25, from 2.4% in FY24 on recovering private sector investment and consumer spending. Fitch forecasts growth picks up to 4.7% in FY26, helped by stronger real income, and to 4.9% in FY27, close to assessment of Egypt’s potential rate.
Structural reform to improve the business environment and competitiveness and mitigate against re-emergence of external imbalances into the medium term has been notably weaker than measures under the IMF programme to restore near-term macro-fiscal stability.
Steps have been taken to improve state-owned enterprises’ management and remove their tax privileges, but divestments have proceeded slowly.
Egypt’s banking sector is highly liquid, with a loan-to-deposit ratio of 63% in June. Fitch projects strong deposit growth, a large part of which will continue to be invested in government securities, providing financing flexibility for the sovereign.
“We anticipate that internal capital generation will support further improvement in the CET1 ratio, from 13.2% in June, and that policy interest rate cuts drive a normalisation of net profits to 30%-50%, from 89% last year”.
