"Fitch" Confirms Egypt's Credit Rating at "B"

Fitch Ratings affirmed Egypt’s long-term foreign currency sovereign credit rating at ‘B’, with a stable outlook, noting that the assessment reflects a mix of positive factors, most notably the relatively high growth potential of the Egyptian economy, continued support from bilateral and multilateral partners, and the large size of the economy compared to other countries rated in the same category.

In a report reviewed by Arabiya Business, the agency added that these positive factors are still offset by structural challenges, including weak public finances, debt service burdens reaching exceptional levels relative to government revenues, large external financing needs, high inflation rates, and geopolitical risks facing the country.

Fitch pointed to an improvement in Egypt’s external indicators this year, with total international reserves rising by approximately $5.5 billion during the first eight months of the year to reach $54.4 billion. Net foreign assets of the Central Bank of Egypt also increased to $19 billion in August, up by $5.6 billion. Meanwhile, net foreign assets of the banking sector remained stable at $12.6 billion, reflecting the economy’s ability to finance the current account deficit through foreign direct investment inflows and external borrowing.

In the same report reviewed by Arabiya Business, the agency noted that the flexible exchange rate regime passed a significant test amid the repercussions of the war in Iran. Egyptian authorities maintained currency convertibility without imposing broad restrictions on foreign exchange, thereby supporting monetary policy credibility. The crisis had led to the outflow of more than $6 billion from foreign investors’ holdings of government debt instruments and caused the Egyptian pound to depreciate by more than 14% against the US dollar. However, short-term inflows subsequently returned, and most of the currency losses were recovered.

Fitch estimated the current account deficit at 5.1% of GDP for the fiscal year 2025-2026, compared to 4.2% in the previous year, driven by rising energy import bills and a deterioration in the trade balance. On the other hand, a 10% growth in tourism revenues and an 18% increase in remittances from Egyptians working abroad helped mitigate the widening deficit.

The agency expects the current account deficit to fall below 3.5% of GDP by the fiscal year 2027-2028, supported by growth in the tourism sector and an improvement in the trade balance, despite assuming that average Brent crude oil prices remain near $79 per barrel during the 2026-2027 fiscal year.

Fitch clarified in the report that the war in Iran pressured Egypt’s inflation levels through higher prices of basic goods and energy, at a time when the country is a net importer of oil and gas. The agency also predicted that the government would implement another fuel price increase in the last quarter of 2026, following the hike approved last March.

Accordingly, the agency raised its inflation forecast to an average of 12.3% for the fiscal year 2026-2027, up from 11.6% in the previous year, before returning to a downward trajectory to register below 10% in 2027-2028, supported by greater exchange rate flexibility, tighter monetary policy, and lower global commodity prices.

Fitch ruled out the signing of a new program between Egypt and the International Monetary Fund following the conclusion of the current program in November next year, but it anticipated the continuation of current economic policies, including maintaining positive real interest rates, achieving high primary budget surpluses, and continuing to implement a more flexible exchange rate regime.

It also noted that Egypt would continue to receive financial support from other international institutions such as the European Union and the World Bank, according to a report reviewed by Al Arabiya Business.

On the public finance front, Fitch projected that the general government deficit would widen to 5.8 percent of GDP during the 2026–2027 fiscal year, up from 5.3 percent in the previous year, due to higher debt service costs. Nevertheless, it expected the deficit to fall below 5 percent by 2027–2028, thanks to lower borrowing costs and the implementation of additional tax measures.