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Are foreign investments in Egypt affected by the Fitch Ratings report?

01:24 PM

Friday 11 November 2022

I wrote – Manal Al-Masry:

Bankers who spoke to Masrawy underestimated the impact of Fitch’s report on Egypt’s credit rating on foreign direct or indirect investments in Egypt.

Last week, Fitch announced that it had revised its outlook for Egypt’s credit rating from stable to negative, while maintaining it at “B+” due to the deterioration of Egypt’s external liquidity position and the decline in access to international bond markets, which makes the country vulnerable to adverse global conditions at a time. High current account deficits (CADs) and external debt maturities.

The bankers explained that amending the future outlook of Egypt’s credit rating from stable to negative is a wake-up call for the possibility of a downgrade of Egypt’s credit rating next time in the event that economic conditions are not corrected or continue as they are.

Mahmoud Nagla, Executive Director of Fixed Income and Money Markets at Al-Ahly Financial Investment Company, said that maintaining Egypt’s credit rating and merely adjusting the outlook “will not affect the investors’ decision to invest in Egypt, especially after Fitch indicated in its report that there are strengths in the Egyptian economy.”

And Fitch Ratings expected the Egyptian economy to grow by 4.5% during the current and next fiscal years, compared to 6.6% during the last fiscal year.

Sahar El-Damaty, former Vice President of Banque Misr, said that modifying the negative outlook is an expected step due to the lack of dollar liquidity, in addition to the fact that 75% of the world’s countries have modified their future outlook or lowered their credit rating due to the economic conditions the world is going through following the Russian-Ukrainian conflict. .

She explained that amending Egypt’s view to negative will not lead to a crisis in entering direct or indirect investments after keeping the rating unchanged, but it may lead to a crisis if the economic situation is not corrected and liquidity is enhanced in its next report.

A member of the board of directors in a private bank, who preferred not to be named, said that adjusting the outlook to negative was based on specific reasons such as the decline in foreign currency assets at banks and the central bank, the decrease in the cash reserve and the size of the benefits on Egypt during the current and next year and was not related to the Egyptian economy as a whole, adding: Therefore, it will not affect the decisions of entering new foreign investments into Egypt or increase the cost of external borrowing for the government.”

In its report, Fitch said that the reserves of the Central Bank of Egypt fell to less than 32 billion dollars by October 2022, from 35 billion dollars in March, and that the assets of the central bank in non-reserve foreign currencies, mostly deposits in local banks, rose to 2 billion dollars by October. , from $1.5 billion in March, but still well below its February level of $9 billion.

Fitch said the drop in foreign liquidity was driven by outflows of non-resident investment in local currency government debt, which fell to about $13 billion by September 2022, from more than $17 billion in March, and over $30 billion in 2021.

The banker explained that the Qatar Investment Authority (the sovereign fund) depositing one billion dollars in the central bank to buy stakes in Egyptian companies is a message of the attractiveness of investment in Egypt and not to be affected by the modification of the outlook and stimulates the entry of other Arab funds.

He added that the failure to enhance the approval of the International Monetary Fund to finance an economic program for Egypt worth $9 billion in Egypt’s credit rating is due to the failure to issue the final approval from the fund’s executive members, which led to the failure to rely on it when determining Egypt’s credit score.

Last month, the Egyptian government reached an agreement with the International Monetary Fund on a 46-month cooperation program in economic reform that includes $3 billion in financing, in addition to making another $1 billion available from the Fund’s Sustainability Fund, in addition to providing an additional $5 billion from other partners supporting the agreement. .

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