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Last week, Moody lowered Egypt’s credit rating from ‘B3’ to ‘Caa1’, considered junk status, citing the country’s worsening debt affordability. 

This means that investors see Egypt at a higher risk of defaulting on its debt. However, Moody’s also gave Egypt a stable outlook, meaning they expect the country’s credit rating to remain at ‘Caa1’ for the next 12-18 months.

Egypt’s Finance Minister Mohamed Maait has since responded to Moody’s decision to downgrade the country’s sovereign credit rating, saying that it was based on external and internal challenges, including the coronavirus pandemic, the war in Europe, and severe inflation.

Maait stressed that the government is working to implement more structural reforms to cope with these challenges.

He cited some examples of these reforms, such as legal amendments to promote fair competition and the state’s exit from certain economic activities. Despite the difficult economic environment, he highlighted the strong financial performance achieved during the fiscal year 2022-2023.

Maait said that the Ministry of Finance achieved a primary surplus of 1.63% of GDP and reduced the total budget deficit to 6% of GDP. 

He also highlighted that these financial results were achieved despite raising minimum wages and pensions and increasing social spending, including expanding the Solidarity and Dignity program by adding one million families, bringing the total beneficiary families to 5.2 million families, equivalent to 20% of the total population.

He also said that tax revenues grew by 27.5% due to digitization efforts, improved tax administration, and the fight against tax evasion and avoidance.

Moody’s expected Egypt to keep spending under control and raise taxes, aiming for a 2.5% GDP surplus in fiscal year 2023/24. This could improve Egypt’s credit rating and outlook and reduce its debt-to-GDP ratio to below 80% by fiscal year 2026-2027.