Moody's Investors Service has downgraded Egypt's long-term foreign and local currency issuer ratings to ‘B3’ from ‘B2’ and changed the outlook to stable from negative.

Furthermore, the credit rating agency also downgraded the Arab Republic’s foreign-currency senior unsecured ratings to ‘B3’ as well as its foreign-currency senior unsecured MTN programme rating to (P)B3.

The ‘B3’ ratings underline Egypt's reduced external buffers to absorb global shocks amid the current economic changes worldwide, according to a recent press release.

The reserves of liquid foreign exchange (FX) plummeted since the negative outlook assignment in May 2022. FX liquidity buffers in the monetary system also decreased, which hiked external vulnerability amid fragile global conditions.

Meanwhile, the stable outlook reflects the balance between the up and downside risks. Downside and liquidity risks underscore tight global capital market conditions, higher domestic borrowing costs, and social spending pressures in an inflationary environment.

Moody's forecast that these risks can be reduced by the government's domestic funding base and track record of regularly generating primary surpluses. It believes that such measures will help ease the debt burden after a temporary setback.

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