Fitch raises Egypt's credit rating to 'B'

Washington (AFP) - Fitch Ratings upgraded Egypt's credit rating one rank to "B" with a "stable" outlook Friday, saying the authorities seemed committed to major reforms.

"Fuel subsidy cuts and tax hikes have been implemented as part of a clear five-year fiscal consolidation strategy," Fitch said in upgrading Egypt from a "B-" rating.

"Power shortages are being tackled, overdue payments to oil companies reduced, investment laws revised and disputes with foreign investors settled," it added, emphasizing that "the measures appear to have strong political backing."

The budget deficit is expected to decrease as a result of the reforms, though it will remain high at 10.2 percent of gross domestic product for the 2015 fiscal year, which runs through June.

The deficit will also benefit from lower than projected wheat prices, Fitch said.

Similarly, the debt level should go down, after several years of deterioration. At the end of 2014, the debt stood at 90.5 percent of GDP, but Fitch said it is set to drop to 85.8 percent of GDP by the end of the 2016 fiscal year.

Economic growth is accelerating, Fitch said, and year-on-year growth reached 6.8 percent in the third trimester of 2014 -- the highest since 2008 -- up from 3.7 percent the quarter before.

According to Fitch projections, annual GDP growth should hit 4.7 percent in 2016, up from 2.1 percent in 2013.

"Growth is vulnerable to setbacks if reform stalls," the agency warned, noting, however, that "Political stability has improved under President (Abdel Fattah al-) Sisi."

The stable outlook reflects Fitch's opinion that "that upside and downside risks to the rating are currently balanced," with the main factors that could lead to a downgrade being renewed fiscal problems or security incidents that slow economic activity.