Some good and bad news from S&P but with the current borrowing policy things on the long run look bad especially if lack of political stability continues! :( PLz note this information is taken from the S&P website without any edits! Ratings On Egypt Raised To B-/B On Donor Support; Outlook Stable Publication date: 15-Nov-2013 00:49:10 EST ________________________________________ View Analyst Contact Information OVERVIEW • In our view, bilateral donors will continue to provide funds to Egypt, reducing balance-of-payments pressures and giving the Egyptian authorities more time to address political and economic challenges. • We expect Egypts net international reserves to stabilize. • We are therefore raising our long- and short-term sovereign credit ratings on Egypt to B-/B from CCC+/C. • The stable outlook balances our view of Egypts difficult political landscape and significant external financing pressures against relatively generous support from bilateral donors. RATING ACTION On Nov. 15, 2013, Standard & Poors Ratings Services raised its long- and short-term foreign and local currency sovereign credit ratings on the Arab Republic of Egypt to B-/B from CCC+/C. The outlook is stable. RATIONALE The upgrade reflects our view that the Egyptian authorities have secured sufficient foreign currency funding to manage Egypts short-term fiscal and external financing needs. We expect support from bilateral lenders to continue over the medium term as the Egyptian authorities try to address the countrys political and economic challenges. In our view, the July announcements that Kuwait ($4 billion), Saudi Arabia ($5 billion), and the UAE ($3 billion) would provide Egypt with cash, interest-free loans, oil, and oil products amounting to 4.4% of 2013 GDP reduces the likelihood that Egypt will face a balance-of-payments crisis. The UAE has since agreed to provide Egypt with a further 1.1% of 2013 GDP in project-related development funding, which we view as an indication of the Gulf Cooperation Councils (GCCs) willingness to financially support Egypt. The GCC has already given to Egypt three-quarters of the funds it promised in July. In our view, Egypts net international reserves will likely stabilize at above two months of current account payments during 2013-2016. We estimate its external debt (net of official reserves and financial sector external assets) will be a relatively modest 15% of current account receipts (CARs) in 2013. Egypts overall net external liability position will likely reach a much more significant 100% of CARs in 2013. Egypts military-backed interim government is working toward an amended constitution. We expect it will hold a constitutional referendum in late 2013, and follow this with parliamentary and presidential elections. The military removed Mohamed Morsi from power in July 2013 and has since banned Morsis Freedom and Justice Party (FJP), the Muslim Brotherhoods political arm. Its leaders have been subject to a crackdown by security forces. In our view, recent events could further radicalize elements of society and raise the prospect of escalating violence. At the same time, electoral outcomes are likely to lack legitimacy in the eyes of a significant proportion of population. We believe that Egypts political tensions will persist, its policymaking will be short term, and structural weaknesses in its fiscal and external positions will continue. We assess Egypts government finances as very weak. We estimate the change in general government debt will average 12% of GDP in 2013-2016. The interim authorities are implementing an expansionary budget, including a 1.5% of GDP stimulus package that will focus on reactivating the economy and improving social justice. We understand that the authorities will also try to increase the tax base. We also anticipate that the Central Bank of Egypt will continue to monetize much of the governments local currency debt. We estimate this will generate 10% average annual inflation over the next few years, alongside supply-side constraints. Central bank claims on the government and public sector increased to about 23% of GDP as of July 2013. The governments stock of debt is relatively high and expensive. General government interest payments increased sharply to above 35% of revenues in 2013, from 27% in 2012. We expect net general government debt to reach 76% this year and peak at 78% in 2014, having risen sharply from 69% in 2012. The government is increasing its debt to meet its significant fiscal deficits while using some of its borrowings--namely from the GCC states--to support the level of foreign currency reserves at the central bank. In our view, the governments ability to raise revenues or cut spending is limited, particularly given Egypts shortfall in basic services. We estimate the governments contingent liabilities as limited. We assess monetary policy flexibility as low, reflecting our view of the central banks close management of the Egyptian pound and the banking systems exposure to the government. We estimate GDP per capita at $3,400 in 2014, indicating a narrow potential tax and funding base for the government. Following several years of sustained strong GDP growth, output is now expected to expand more slowly given ongoing political instability. OUTLOOK The stable outlook balances our view of Egypts difficult political landscape and significant external financing pressures against relatively generous support by bilateral donors. We could lower the ratings if we conclude that the Egyptian authorities are unable to prevent a further significant deterioration in external, fiscal, or monetary indicators. We could also lower the ratings if we believed donor support was unlikely to be forthcoming in a sufficient and timely manner to help Egypt meet its financial obligations. We could raise the ratings if Egypts political transition strengthens relations between the government and wider society and brings about a sustained improvement in external performance, including net international reserves, thereby easing external pressures. KEY STATISTICS Table 1 Arab Republic of Egypt - Selected Indicators 2006 2007 2008 2009 2010 2011 2012 2013e 2014f 2015f 2016f Nominal GDP (US$ bil) 108 130 163 190 214 232 250 270 281 313 372 GDP per capita (US$) 1,485 1,754 2,154 2,473 2,743 2,925 3,101 3,289 3,375 3,694 4,314 Real GDP growth (%) 6.8 7.1 7.2 4.7 5.1 1.8 2.2 2.0 3.0 4.0 4.0 Real GDP per capita growth (%) 5.0 5.3 5.4 2.9 3.4 0.1 0.5 0.4 1.3 2.3 2.3 Change in general government debt/GDP (%) 0.3 4.9 4.3 12.0 10.6 12.2 12.8 17.2 13.6 10.0 9.0 General government balance/GDP (%) (9.2) (7.5) (7.5) (6.9) (8.2) (9.8) (10.7) (13.4) (12.0) (10.0) (9.0) General government debt/GDP (%) 90.2 79.7 70.6 72.7 73.4 76.7 81.0 86.8 87.4 83.6 79.4 Net general government debt/GDP (%) 71.2 62.9 54.7 57.0 59.1 64.1 69.5 76.1 78.3 76.0 73.0 General government interest expenditure/revenues (%) 19.8 18.7 16.5 15.2 20.5 25.3 26.8 36.3 35.2 35.1 30.2 Oth dc claims on resident non-govt. sector/GDP (%) 55.9 50.3 46.6 40.1 36.5 34.4 33.0 31.2 29.2 27.1 25.3 CPI growth (%) 7.6 9.3 18.3 11.8 11.3 10.1 7.1 10.0 10.0 10.0 10.0 Gross external financing needs/CARs +use. res (%) 76.4 74.6 71.6 74.4 73.6 75.7 98.4 96.5 104.1 100.6 99.9 Current account balance/GDP (%) 0.7 0.6 (0.4) (2.8) (2.7) (3.1) (4.4) (2.5) (2.8) (2.6) (2.0) Current account balance/CARs (%) 1.8 1.6 (1.0) (9.3) (10.0) (11.7) (17.2) (10.1) (11.8) (11.8) (9.3) Narrow net external debt/CARs (%) (45.8) (60.0) (26.6) (39.9) (50.6) (7.1) 0.8 15.4 17.4 20.1 21.9 Net external liabilities/CARs (%) 23.6 2.6 34.8 44.4 48.0 79.4 84.8 99.7 112.9 119.5 113.8 • 1 Attachment • Download attachment
Posted on: Sun, 17 Nov 2013 13:31:53 +0000
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