Fitch up-beat on Egypt's foreign currency position

Fitch Ratings has published an up-beat assessment of Egypt's foreign currency position and its economic prospects. A short report shows that the foreign currency position of the government and of the banking system has bounced back since the start of the pandemic, and that banks' non-performing loans remain within reasonable levels.

Foreign holdings of Egyptian treasuries rose to $29 bn at the end of May 2021, compared to $10 bn at the end of June 2020. At the start of the pandemic foreign investors sold $17 bn in local currency government securities. 

The government's net foreign currency position has also improved as a result of Eurobond issuance of $4.55 bn in the six months to February 2021, and due to a $5.2 bn IMF standby facility. Foreign currency remittances rose by 10% in 2020, year-on-year, to reach $30 bn, Fitch says. 

The Central Bank of Egypt's (gross) foreign currency reserves have stood at a little over $40 bn during all of 2021.

The banking sector had net foreign assets of $1.7 bn at the end of June 2021, Fitch says. This was below pre-pandemic levels (net foreign assets of $7.3 bn at the end of February 2020) partly due to banks raising foreign currency liabilities from international development finance banks. However, Fitch says that 70% of the system's external debt is long-term and that short term liabilities are covered by short term assets. 

Fitch is predicting GDP growth of 6% in financial year 2022, compared to 3% in 2021. 

Banks' loan portfolios have been growing rapidly, but this is partly due to government programmes that subsidised interest rates on loans to certain sectors, and due to some customers deferring interest and principal repayments, again as part of the Egyptian government's response to the pandemic. 

Non-performing loans remain within reasonable levels, although Fitch notes wide differences between different banks Stage 2 loan portfolios.

In July, Fitch revised its outlook on the Egyptian banking sector to stable from negative. Fitch rates the Egyptian government at B plus.

 

 

 

 

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