Moody's: Egypt's Economy Showed High Shock-Absorption Capacity In 2018Source: www.export-egypt.com 5/10/2019, Location: Africa |
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Moody's Investors Service has said Egypt's economy demonstrated a high shock-absorption capacity during the second half of 2018.
In its report released the credit rating agency ascribed improvement in the country's economy to the strength of the domestic financial sector and its role as a primary funding source for the government during times of stress. "The macroeconomic and fiscal reforms the Government of Egypt (B2 stable) has implemented in the run-up to and under the umbrella of its three-year Extended Fund Facility (EFF) with the IMF since November 2016 have helped move the economy toward a higher trend growth path and strengthened its shock-absorption capacity," the report said. "Continued progress on reforms observed over the past three years and improvements in the private sector's access to credit underpin our expectations of a return to 5.5% GDP growth in 2019 and further acceleration to 6% by 2021," the report added. "On the long-term, Egypt's potential growth will hinge on reforms that foster absorption of large numbers of new labor market entrants over the next decade in light of the public sector's balance sheet constraints," the report read. "We expect the general government primary balance surplus to increase gradually in the next few years, towards 2% of GDP by fiscal 2022, from 0.8% in fiscal 2019 and a 5.6% deficit in fiscal 2013, supported primarily by spending reductions," the report noted. "In particular, the extension of the consumer price indexation formula to most fuel types--supported by the adopted oil price hedging mechanism as backstop against oil price spikes--will shield the fiscal trajectory from oil price shocks and allow the fiscal deficit to decline in line with a gradually diminishing interest bill," according to the report. "The business environment reforms the government embarked on under the three-year $12 billion Extended Fund Facility (EFF) with the IMF are aimed at shifting the economy's orientation to a more efficient and inclusive private sector-led growth model in light of the public sector's balance sheet constraints," the report said. "We believe the period of very tight domestic financing conditions and low foreign exchange reserve buffers in the run-up to the flotation in late 2016 represented the domestic financial system's close to maximum government funding capacity in case foreign investors would completely withdraw from the domestic T-bill market," the report concluded. |
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