Moody’s Investors Services has maintained its review for downgrade of for Egypt’s B3 long-term foreign-currency and local-currency issuer ratings, according to a recent statement.

The ratings were extended from the review for downgrade on May 9th to focus on the proceeds from the recently closed asset sales to boost foreign currency liquidity and the monetary system’s net foreign asset position, foreign direct investment (FDI) inflows, and the exchange rate, as per the agency.

The agency said that the continuation of the review ensures progress on the government’s recent sale of state assets and structural reform agenda against concern over further weakening in external liquidity through a depletion of commercial bank’s net foreign assets at a level that surpasses the concluded asset sales.

This would hinder achieving the goal of sustainably reviving the economy's foreign exchange liquidity buffers prior to the increase in debt service payments in fiscal years (FYs) 2023/2024 and 2024/2025, the agency stated.

Moody’s referred to a likelihood of a new devaluation of the Egyptian currency due to foreign exchange shortage, which could raise inflation levels and increase the costs of borrowing and government debt ratio to a point more compatible with a lower rating level despite the government’s ability to increase revenues and surpass its primary fiscal surplus targets.

On the other hand, the agency expects more economic progress, paving the way for the International Monetary Fund (IMF) to conduct its delayed first and second reviews of the financing program performance for Egypt.

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