LONDON, February 19 (Fitch) Egypt's public finances remain the
main weakness in
the country's sovereign credit profile, despite a slight
improvement in its
budgetary performance in the first half of the current fiscal
We discussed this and other risks and challenges to Egypt's
profile on a conference call Wednesday, 19 February. A replay
will be made
available at www.fitchratings.com.
Data for the first six months of the fiscal year ending June
2014 show the
budget sector deficit narrowing to 4.4% of forecast GDP from
5.2% a year
earlier. But the 15% improvement in government revenues was
entirely driven by
grants, which were EGP36.9bn (USD5.3bn) compared with EGP3bn in
the first half
of FY13. Other non-tax and tax revenues fell slightly
Spending rose 8%, driven by public sector pay and interest
subsidies, and interest payments have posted some of the largest
expenditure in recent years. Spending growth is likely to pick
up between now
and June, and we forecast the FY14 deficit will be 11.8% of GDP,
last year but higher than the government's forecast. The higher
include economically beneficial capex as part of the
packages but will also reflect increases to the public-sector
minimum wage and
stage pensions that add to fiscal rigidity.
The political sensitivities involved in reducing expenditure on
subsidies mean we do not expect a significant deficit reduction
over our ratings
horizon of the next two years, and we forecast the deficit will
be close to
double digits in FY15. Nevertheless, the current interim
administration has been
laying the groundwork for potential fiscal reform, which may be
to a government that emerges from presidential and legislative
later this year.
Without significant fiscal reform, general government debt will
remain at around
90% of GDP, well above the median for Egypt's ratings peers.
The extent of these and other risks are reflected in the 'B-'
We revised the Outlook on the rating to Stable from Negative on
3 January, 2014
on tentative improvements in political and economic stability.
The Full Rating Report and our Special Report 'Egypt: Rating
Recovery Unlikely' are also available at www.fitchratings.com.
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
The above article originally appeared as a post on the Fitch
Wire credit market
commentary page. The original article can be accessed at
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