While Egypt's international Monetary Fund programme will support gradual improvements to the country's fiscal and external position, its social and economic costs risk slowing the pace of fiscal reform momentum, according to Moody's Investors Service. Moody's released earlier Wednesday its report entitled; "Government of Egypt – IMF Programme Supports Gradual Fiscal, External Improvements". "The implementation of the IMF programme's targets, including reductions in fiscal deficits and government debt levels, as well as improvements in Egypt's external liquidity position, will help address Egypt's key credit challenges," said Steffen Dyck, a Moody's Senior Credit Officer and co-author of the report. "However, ambitious fiscal consolidation targets will be challenging to achieve and could face implementation risks in a scenario of mounting public discontent." Moody's projects that Egypt's fiscal deficit will decrease to 11.0 percent of GDP in fiscal year 2017 and 8.5 percent in 2019, from 12.6 percent in 2016. Moody's forecasts are more conservative than the IMF programme projections of 10.0 percent of GDP in fiscal 2017, reducing to 6.1 percent in fiscal 2019, driven by Moody's somewhat lower growth assumptions and potential fiscal slippage, both in the near- and medium-term. Although Moody's expects Egypt's fiscal challenges to remain high, the country's monetary, fiscal and structural reforms will likely lead to slow but steady improvements for the sovereign credit profile beyond the timeframe of the IMF programme. The liberalisation of Egypt's foreign exchange regime and the depreciation of the Egyptian pound will initially keep the current account deficit high due to the pent-up demand for imports and the lower sensitivity of exports to the exchange rate. Moody's anticipates that the current account deficit as a percentage of GDP will increase in the 2017 fiscal year and fall only from 2018 onwards due to the weaker exchange rate. Nonetheless, higher incoming portfolio and foreign direct investment flows, along with additional external funding from the IMF, multilateral and bilateral partners, will support Egypt's balance of payments and international reserves position.
