Credit rating agency Moody’s said it forecasts Egypt’s economy to grow by 4.0 percent and 4.5 percent in 2017/2018, supported largely by private consumption, as well as increasing public and private investment.
Despite a series of negative shocks, Egypt retains the region's highest economic strength assessment, which reflects not only its scale but also its growth outlook compared to peers, Moody's Investors Service in its annual Levant and North Africa Sovereign Outlook.
The report named Moody's rated Tunisia, Jordan, Lebanon, Morocco, and Egypt — in 2017 has reflected the lower for longer energy price environment as well as the reform momentum in the region, despite continuing political and security headwinds.
"Improving growth momentum and access to external funding sources under International Monetary Fund (IMF) programmes in four of five countries in the Levant and North Africa supports our stable credit outlook for the region," Elisa Parisi-Capone, Vice President at Moody's, said.
Moreover, the lower for longer energy price environment has provided further support to the region's gradual external rebalancing and has helped to offset subdued tourism, foreign direct investment, and reduced financial transfers from Gulf Cooperation Council (GCC) countries.
Headwinds for the region remain, with risks to reform implementation remaining high in countries with a comparatively weak track record in government effectiveness, in particular Lebanon and Egypt. Persistent domestic and regional security challenges also continue to constrain sovereign credit profiles, albeit to varying degrees.
On the funding side, Moody’s said all countries except Tunisia benefit from dedicated domestic funding bases that reduce their reliance on external borrowing, even at high debt levels and gross financing needs which in 2017 range from 55.6 percent of GDP in Egypt, to 30.8 percent in Lebanon, 21.5 percent in Jordan, 12.2 percent in Morocco, and 9.4 percent in Tunisia.
Continued reform delays in Lebanon underpin the negative outlook and increase the risk that deficit and debt levels could approach levels that may no longer be consistent with current ratings. Moody's forecasts a deterioration in the fiscal balance in 2017-18 to 9.3 percent and 9.9 percent respectively, with the debt ratio increasing to 144 percent of GDP in 2018.
In Tunisia, the negative outlook also reflects tighter external funding conditions arising from its substantial foreign-currency debt and funding structure. Egypt and Tunisia's current account deficits have deteriorated marginally over 2012-16 to 4.6 percent of GDP and 8.5 percent, respectively. Moody's projects current account deficits of 7.5 percent and 6.0 percent in Egypt for 2017 and 2018, and 7.9 percent and 7.3 percent for Tunisia.
Moody's notes that domestic and/or geopolitical risk remain among the main drivers of event risk in regional sovereign credit profiles, especially in the case of Egypt, Lebanon, and Tunisia.
Amwal Alghad
18 January
