Arab Finance: Moody’s Ratings has raised Egypt’s long-term local- and foreign-currency issuer ratings and foreign-currency senior unsecured ratings to B3 from Caa1, maintaining a positive outlook, the rating agency stated.

The rating agency also lifted Egypt’s foreign-currency senior unsecured medium-term note (MTN) program rating to (P)B3 from (P)Caa1.

Moody’s raised the foreign-currency backed senior unsecured MTN program rating of the Egyptian Financial Company for Sovereign Taskeek to (P)B3 from (P)Caa1 as well. The company is a government-owned special-purpose vehicle whose issuances the agency considers ultimately obligations of the Egyptian government. Its outlook also remains positive.

The rating action is driven by fiscal consolidation and structural reforms that helped bring down government debt and interest burdens.

Improved revenue collection and spending restraint supported the upgrade, although debt and interest costs remain high. The agency also cited a more flexible exchange rate and tighter monetary policy as factors that have strengthened Egypt’s external buffers and ability to withstand economic shocks.

Moody’s said the government’s capacity to maintain these gains despite higher oil prices and difficult external conditions reflected more effective policymaking.

The positive outlook leaves room for further improvement if fiscal discipline and continued reforms bring debt and interest burdens down more quickly than the agency currently projects. Stronger economic growth, better revenue collection and lower domestic borrowing costs could support that outcome as inflation moderates and investor confidence improves.

Alongside the sovereign upgrade, Moody’s increased Egypt’s local-currency ceiling to Ba3 from B1 and its foreign-currency ceiling to B2 from B3.

The local-currency ceiling stands three notches above the sovereign rating, reflecting the economy’s size and diversity. However, the agency noted that the public sector’s extensive presence continues to constrain private sector development and credit allocation, despite reforms aimed at creating more equal conditions for public and private businesses.

The foreign-currency ceiling remains two notches below the local-currency ceiling because of transfer and convertibility risks. Moody’s linked those risks to Egypt’s substantial foreign-currency financing requirements relative to official reserves, alongside the possibility of capital flight.