Moody’s Ratings (Moody’s) has today affirmed the Government of Egypt’s Caa1 long-term foreign and local currency issuer ratings and maintained the positive outlook.
Also, the global rating agency affirmed Egypt’s foreign-currency senior unsecured ratings at Caa1, and its foreign-currency senior unsecured MTN program rating at (P)Caa1.
It added that the positive outlook in place since March 2024 reflects the prospect that Egypt’s fiscal and external improvements achieved to date will be sustained, underpinned by the authorities’ policy and reform commitment, ultimately supporting a lasting improvement in government debt affordability and reduction in gross financing needs.
In particular, the government has maintained sizeable primary fiscal surpluses since fiscal 2024, while the central bank has prioritised disinflation and external rebalancing, helping to restore macroeconomic stability.
Moody’s said Egypt’s debt and external vulnerabilities continue to constrain the credit profile, leaving the sovereign particularly exposed to the ongoing oil price shock and the associated risks of tighter global financing conditions and capital outflows, which could reverse the credit positive trend achieved so far, a key consideration underpinning the affirmation of the Caa1 ratings.
Ratings analysts said these vulnerabilities include a high—albeit declining—government debt burden, very weak debt affordability, sizeable domestic and external refinancing needs, and still-large contingent liabilities in the broader public sector.
Moreover, social pressures could emerge if the commodity price shock erodes real incomes, challenging the authorities’ ability to sustain the policy discipline maintained so far.
“We have also affirmed the (P)Caa1 backed senior unsecured MTN program rating of the Egyptian Financial Corporation for Sovereign Taskeek, the government’s sukuk-issuing special purpose vehicle, whose issuances are, in our view, ultimately the obligation of the Government of Egypt.
“We have concurrently maintained the positive outlook on the Egyptian Financial Corporation for Sovereign Taskeek”. The local-currency ceiling is unchanged at B1, and the foreign-currency ceiling at B3, according to the rating note.
Moody’s said the three-notch gap between the local-currency ceiling and the sovereign rating reflects a large and diversified economy, but it has a very large public-sector footprint that inhibits private-sector development and credit allocation, despite ongoing reforms to level the playing field between the private and public sectors.
The two-notch gap between the foreign currency and local currency ceiling reflects transfer and convertibility risks given persistently large foreign currency financing needs compared to the official foreign currency buffers and risks of capital flight.
The positive outlook reflects the prospect of a sustained reduction in the government’s debt service burden and a more established track record of preserving improvements in Egypt’s external profile.
Sizeable primary fiscal surpluses since fiscal 2024 (ending in June 2024), driven by spending restraint and incremental gains in tax revenue collection, underpin this trend, which is strengthened by the government’s stated commitment to fiscal discipline.
The central bank’s focus on disinflation and foreign exchange policies that avoid the accumulation of new imbalances further support macroeconomic stability.
Ratings analysts said ongoing reforms to the business environment could strengthen medium-term growth prospects and reinforce the improving macroeconomic backdrop.
The positive outlook reflects the prospect of a sustained reduction in the government’s debt service burden and a more established track record of preserving improvements in Egypt’s external profile.
Sizeable primary fiscal surpluses since fiscal 2024 (ending in June 2024), driven by spending restraint and incremental gains in tax revenue collection, underpin this trend, which is strengthened by the government’s stated commitment to fiscal discipline.
“In the next few years, we expect primary surpluses to average 4% of GDP excluding one off revenue from asset sales, up from 3.5% of GDP in fiscal 2025, with the removal of tax exemptions for state owned enterprises, improving tax compliance and administration, and new tax measures worth around 1% of GDP in additional revenue.
“The tax package has been approved by the cabinet and submitted to parliament, with approval targeted by June 2026 constituting a structural benchmark under the current IMF program. The government also remains committed to further reducing untargeted subsidies, following the achievement of full cost recovery for retail transportation fuels at the end of 2025.”, Moody’s said.
The central bank has maintained a flexible exchange rate regime and tight monetary policy under the inflation targeting framework, a stance that is likely to continue.
Inflation declined to 13.4% year on year in February 2026 from an average of 33.3% in fiscal 2024 amid high real interest rates. The central bank has refrained from foreign exchange intervention to support the Egyptian pound, limiting erosion of foreign currency buffers, including since the start of the Middle East conflict in late February 2026, which so far has led to around $8 billion of estimated foreign portfolio outflows, weighing on the exchange rate.
These dynamics should allow government interest payments to peak in fiscal 2026 at around 63% of general government revenue, or 11% of GDP, before declining toward about 57% of revenue, or 10% of GDP, by fiscal 2028.
Over the same period, analysts expect the government debt ratio to fall to around 76% of GDP from around 82% of GDP as of June 2025, supported by sustained primary surpluses, a positive growth-interest rate differential, and gradually easing domestic borrowing costs.
The affirmation of Egypt’s Caa1 ratings reflects elevated external and debt vulnerabilities that heighten the sovereign’s exposure to the ongoing oil price shock through higher inflation, tighter financing conditions, a larger energy import bill, and risks of capital outflows.
Fiscal shock-absorption capacity is very limited, with interest payments absorbing nearly two-thirds of government revenue and government debt exceeding 82% of GDP.
Vulnerabilities are compounded by the short maturity structure of domestic debt, which accounts for around 75% of total debt and generates local currency refinancing needs of close to 30% of GDP annually.
This leaves the fiscal position highly sensitive to interest rate increases should inflation outlook deteriorate as a result of the oil price shock. External liquidity risks remain significant given non-resident holdings of more than $30 billion in domestic government debt and $16 billion of public and publicly guaranteed external debt (excluding the debt owed by the central bank) maturing in fiscal 2027, compared with central bank net foreign assets of USD 31 billion as of February 2026.
In addition, sizable contingent liabilities—stemming from government guarantees of close to 30% of GDP, largely related to the Egyptian General Petroleum Company (EGPC)—pose further downside risks, particularly if elevated international oil prices prevent sustaining cost recovery in domestic fuel pricing, despite the measures undertaken by the authorities thus far to improve EGPC’s financial position, allowing the company to clear most of its payment arrears and stabilize natural gas production.
Against this backdrop, the escalation of the Middle East conflict has already begun to negatively affect Egypt through higher energy prices, energy supply disruptions, and confidence sensitive capital flows, posing risks to recent improvements in macroeconomic and credit metrics.
Sharply higher oil prices, compounded by a roughly 10% depreciation of the pound, have led to a significant increase in domestic fuel prices.
While the increase, along with the energy-saving measures announced by the authorities, will help to contain fiscal pressures, it threatens to disrupt disinflation and delay a further easing of domestic borrowing costs.
At the same time, disruptions to natural gas imports from Israel have increased reliance on more expensive liquefied natural gas, raising the energy import bill and risking a partial reversal of the recent narrowing of the current account deficit.
Higher energy costs may also weigh on fiscal consolidation by dampening domestic demand and tax collection, challenging the government’s plan to further reduce subsidies, and increasing pressure for additional social spending. Rwanda Unlocks Access to $250 million IMF Loan