CAIRO – 28 April 2024: Escalating regional conflict poses risks to Egypt's tourism and Suez Canal revenues, and will further weigh on its current account deficit, Fitch Ratings said.
Fitch noted that direct exchanges of attacks between Iran and Israel raise the risk of escalating regional conflict beyond Gaza.
“However, Egypt's recent Ras Al Hikmah agreement and increased exchange rate flexibility have enabled additional lending from international financial institutions and non-resident inflows into the domestic bond market, providing short-term external funding. Procurement risks and external financial vulnerabilities have been significantly reduced as a “geopolitical event,'' the rating agency added.
In February, Egypt signed an agreement with Abu Dhabi Development Holding Company PJSC (ADQ), the sovereign wealth fund of the Emirate of Abu Dhabi, to develop the city of Ras El Hikma with a total investment of $35 billion.
The government expects the project to attract up to $150 billion in investment during development, provide millions of job opportunities and help inject liquidity into Egypt's economy.
Under the deal, Cairo will receive $35 billion, including $11 billion in Emirati deposits with the Central Bank of Egypt, in addition to a $24 billion injection from the United Arab Emirates. Egypt will receive 35% of the profits from the Ras El Hikma project, and the state promises cash and in-kind compensation to residents living on city land.
In November, Fitch Ratings downgraded Egypt's long-term foreign currency issuer default rating (IDR) from 'B' to 'B-' with a stable outlook. This rating can be attributed to increased risks to external financing, macroeconomic stability, and high levels of government debt.
According to Fitch, the stability of the official exchange rate stands in contrast to the Egyptian Central Bank's commitment to a flexible exchange rate, and the maturities of Egypt's external debt are expected to increase in the future and the current account deficit is expected to widen. added.
