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Finance Minister discusses S&P downgrading Egypt’s economic outlook

Egypt will implement a package of financial, monetary and structural measures to deal with the high external financing needs of the Egyptian economy which prompted Standard & Poor’s Global Ratings (S&P Global Ratings) to downgrade Egypt’s outlook to negative, Egyptian Finance Minister Mohamed Maait announced.

He explained that the decision for S&P Global Ratings to keep Egypt’s credit rating in both local and foreign currencies at B, while downgrading the future outlook from stable to negative for the Egyptian economy, resulted from pressures related to foreign transactions as well as the economy’s exposure to external pressure.

The largest of these external pressures are related to the armed conflict in Ukraine and its subsequent negative economic repercussions globally, including an unprecedented wave of inflation, he added.

The minister noted that the Egyptian government provides financial support to sectors of society most vulnerable to inflationary pressures.

Maait stressed that Egypt is continuing to implement the economic reform program supported by the International Monetary Fund and will deal with the high external financing needs of the Egyptian economy.

According to S&P Global Ratings’ estimates, Egypt’s external financing needs amount to about US$17 billion during the current fiscal year 2022/2023 and $20 billion during the next fiscal year 2023/2024.

Maait assured that the Egyptian government is eager to implement what it announced in December 2022 regarding structural reforms, especially its offering program and to attract more foreign direct investments while completing financial control policies, which will lead to a continuous flow of foreign currency.

S&P Global Ratings expects an average economic growth rate of four percent per annum over the next three years, driven by the construction and energy sectors, in addition to other sectors such as information and communication technology, wholesale and retail trade, manufacturing industries, agriculture, and health, Maait said.

Maait added that S&P Global Ratings also shed light on the continued achievement of fiscal discipline, largely evident during the results of the fiscal year 2021/2022 where the total deficit reached 6.1 percent of the GDP, down from 6.8 percent of the GDP during the 2020/2021 fiscal year in light of the pandemic.

The minister referred to the Egyptian economy achieving a primary surplus for the fifth year in a row, at 1.3 percent of the GDP.

The report highlighted the strong growth in government revenues due to the expansion of the tax base despite the economic conditions as a result of large-scale mechanization measures being applied to improve tax administration, he noted, in addition to efforts to rationalize expenditures and expand the social protection network.

He noted that the report anticipates reducing the current account deficit in nominal terms during the coming period until 2026, as the flexibility of the exchange rate will support Egyptian exports, amid a strong performance of petroleum export revenues, especially from natural gas – which recently reached $700 million per month.

S&P Global Ratings referred to the importance of the private sector’s role in enhancing economic activity through increasing the private sector’s contribution to total investments, the Deputy Minister for Financial Policies and Institutional Development Ahmed Kajouk said.

There was also a noticeable improvement in indicators for the current balance of fiscal year 2021/2022, as the proceeds of non-oil exports achieved a remarkable increase by 29 percent annually in light of the rise in exports of fertilizers, medicines and ready-made clothes.

A large surplus was achieved in the oil trade balance at 4.4 percent, thanks to the increase in natural gas exports.

The Suez Canal achieved its highest historical revenue of seven billion dollars and is expected to reach more than eight billion during 2023, in addition to a growth in tourism revenues.

Egyptian expatriate workers’ remittances continued to achieve high returns during the past year totaling to about $33 billion.

The proceeds of foreign direct investment rose by 71 percent to about $9.1 billion, compared to about $5.2 billion in the previous year, thanks to the diversification of sources and the foreign investments flowing to many sectors – the most important being manufacturing industries, construction and building, communications and information technology.

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