Moody’s says Egypt review continues, asset sales may be offset by external liquidity drawdown

Moody’s says Egypt review continues, asset sales may be offset by external liquidity drawdown

Moody’s Investors Service said Friday it continues to review for downgrade the Government of Egypt’s B3 long-term foreign-currency and local-currency issuer ratings.

The credit rating agency said the review balances progress on the government’s privatization, fiscal, and structural reform agenda against evidence of a further weakening in external liquidity through a drawdown of commercial banks’ net foreign assets at a scale that exceeds recently concluded asset sales.

Moody’s said the continuation of the review reflects its concerns about the persistence of foreign exchange shortages, as reflected in a parallel currency market, and the materialization of new terms of trade shocks in the food and energy sectors.

These factors, the agency said, increase the likelihood of a renewed official currency devaluation that could drive inflation, borrowing costs, and the general government debt ratio to levels more consistent with a lower rating level.

The extended review period for Egypt’s downgrade will focus on the extent to which the proceeds of the recently concluded asset sales help restore foreign currency liquidity buffers evident in foreign exchange reserves, the monetary system’s net foreign asset position, FDI inflows, as well as exchange rate dynamics.

It will also focus on the government’s ability to successfully secure disbursements under the IMF program