21 May 2023

"Egypt's credit rating”

Economist: Dina Elwakkad
dwakkad@ostoulsb.com
The implementation of the government's offering program relieves pressure on both the exchange rate and the country's credit risks

Event: downgrading the credit rating of several Egyptian banks and a negative future outlook

Fitch lowered the credit rating of long-term deposits for four Egyptian banks, namely: the National Bank of Egypt, Banque Misr,
Banque du Caire, and Commercial International Bank from (B+) to (B) and kept its negative outlook for the four banks
unchanged. Moody's also set the credit rating. Five Egyptian banks are under review to reduce, namely: the National Bank of
Egypt, Banque Misr, Banque du Caire, Banque, Alexandria, and CIB. This comes about a week after the agency rated Egypt’s
Figure (1): Net international reserves (billions of dollars)
issues in foreign and local currencies at (B3).

Reasons: The recent performance indicators of the Egyptian economy reflect many negative indicators. This, in turn, was 32.6
33
32.6 32.4
reflected in the decline in confidence in the Egyptian economy at the domestic, regional, and international levels, which reflects 31.9
the weakness of the sovereign's ability to provide support, especially foreign currency. Moody's attributed the reasons to 31.1
slower-than-expected progress in selling assets owned by the Egyptian state, in addition to Egypt facing an acute shortage of 30.5 30.5

foreign currency despite allowing the pound to devalue sharply in the past few months, especially with the departure of foreign
investments in short-term debt instruments from Egypt at much lower rates, than it was in the past year, but the scarcity of 28.8

foreign exchange continues in all cases, especially with the decline in net international reserves to reach $34.55 billion in April
2023, compared to $35.49 billion in May 2022, as shown in Figure.)1(

What does that mean? The negative future outlook of international credit rating agencies for Egypt reflects the high risk of First Second Third Forth First Second Third Forth First
quarter of quarter of quarter of quarter of quarter of quarter of quarter of quarter of quarter of
inability to pay the upcoming external debt service, as the scarcity of foreign currency and the decline in net international 2020/2021 2020/2021 2020/2021 2020/2021 2021/2022 2021/2022 2021/2022 2021/2022 2022/2023

reserves weaken Egypt's ability to deal with external shocks, and if the cost of domestic borrowing continues to rise, this will
Source: Ostoul Research based on data from the Central Bank of Egypt
lead to an increase in Liquidity risks and debt sustainability challenges, both of which represent long-term weaknesses in Egypt's
credit profile.
Figure (2): Total debts (Long- and short-term debts) (billions of dollars)
Solutions: Implementation of the government’s offering program, through which a large amount of cash needed to support the
long-term debt short-term debt total debts
Egyptian pound can be procured, thus easing pressures on the exchange rate, as well as the country’s credit risks. On the other
hand, the government says that it is serious about resolving the crisis and that it is about to collect two billion dollars before the
end of next June from selling shares in companies owned by it.

Facts and figures: Government data indicates an increase in the debt ratio as a percentage of GDP, which reached 32.4% in the 157.8 155.71 154.98
145.53
first quarter of 2022/2023, compared to 28.8% in the first quarter of 2021/2022, and 31.1% in the first quarter of 2020/2021. 129.2 134.84 137.86 137.42
125.33
The total long and short-term external debt also increased to reach $154.98 billion in the first quarter of 2022/2023, compared
to $137.42 billion in the first quarter of 2021/2022, and $125.33 billion in the first quarter of 2020/2021, as shown in Figure 13.26 13.72 11.48 12.84 26.44 26.62 27.41
.)2( 12.32 11.96

117.24 121.58 124.14 125.94 132.69 131.36 129.09 127.57

113.01
The monthly statistical bulletin of the Central Bank of Egypt revealed that the debt burden service was divided into paid
installments of $3.229 billion, and paid interest of $1.555 billion by the end of the first quarter of 2022-2023. Thus, Egypt will
have paid $4.784 billion in interest and foreign debt installments during the first quarter of 2022-2023. Egypt also paid $1.5 FIRST SECOND THIRD FORTH FIRST SECOND THIRD
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
FORTH FIRST

billion in November 2022, then $1 billion in December 2022. According to Finance Minister Mohamed Maait, Egypt paid OF OF OF OF OF OF OF OF OF
2020/2021 2020/2021 2020/2021 2020/2021 2021/2022 2021/2022 2021/2022 2021/2022 2022/2023
international bond dues during the first quarter of 2023, amounting to about $3.5 billion. Thus, Egypt will have paid about
$10.784 billion until the first quarter of 2023. Source: Ostoul Research based on data from the Central Bank of Egypt

Finance Minister Mohamed Maait also stated that the end of the current year in December will witness the start of recovery and
the stage of returning to the indicators of the Egyptian economy, and the stability of the exchange rate and prices. According to
our estimate, this will only be achieved by addressing the main problem, which lies in the lack of foreign currency needed to
support foreign reserves and meet the external debt service, especially as Egypt faces a funding gap estimated at $5 billion in
the first half of 2023, according to the Economic Policy Note and the financing provided by Egypt to the International Monetary
Fund. Morgan Stanley expects this gap to reach 23 to 24 billion dollars by the end of the next fiscal year 2023/2024.
1
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Research team:-
Mohamed Abdelhakeem
Head of Research
mhakeem@ostoulsb.com

Abdelrahman Elshamy Mariam Lofty Sara Hosni Insherah Sayed Dina Elwakked
Equity research analyst Equity research analyst Equity research analyst Equity research analyst Economist
aelshamy@ostoulsb.com mmohamed@ostoulsb.com shosni@ostoulsb.com isayed@ostoulsb.com Dwakkad@ostoulsb.com

Brokerage:-
Amr abdo
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Assets management:-
Hesham Mahmoud
hmahmoud@ostoulcapital.com

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21 May 2023 2