Moody's Ratings has raised Egypt's sovereign credit score due to easing inflation and growing business confidence as the country introduces economic reforms.
The upgrade to B3 was underpinned by efforts focused on fiscal consolidation and structural reforms, which have helped reduce government debt and interest burdens, the New York-based ratings agency said on Friday.
A B3 rating is still six notches below investment grade, which makes it easier to access capital markets and raise funds when the need to borrow arises. But the upgrade pulled Egypt out of the "substantial risk" level.
"Stronger revenue collection and expenditure restraint have supported [Egypt's] progress," analysts at Moody's said.
Cairo's shift to a flexible exchange rate and tighter monetary policy has strengthened external buffers and the economy's capacity to absorb shocks, they added. "The government's ability to sustain this credit-positive trend despite a challenging external environment and higher oil prices highlights the durability of the improvement, rooted in increased policy effectiveness," Moody's said.
The agency also gave Egypt a positive outlook, noting sustained fiscal discipline and continued reforms that have performed better than expected.
That could be further driven by "stronger growth, more effective revenue collection and a faster decline in domestic borrowing costs as inflation eases and investor confidence strengthens", it added.
Fitch and S&P Global affirmed their ratings on Egypt last week, with both referring to the country's progress.
Egypt has been battling economic challenges and elevated inflation, but the government has taken steps to counter their effects. "The reform of Egypt's monetary policy framework since March 2024 has strengthened the sovereign's ability to absorb external shocks," the Moody's analysts said.
"The unification of the foreign exchange market and adoption of a flexible exchange rate reduced foreign currency distortions, eliminated chronic foreign currency shortages, and allowed the currency to adjust to changes in capital flows without depleting official foreign-currency buffers, unlike in 2022."
As a net energy importer, Egypt was forced to introduce fuel-saving measures as the war in Iran drove up oil and gas prices, adding to inflationary pressures and the cost of living. Higher energy costs kept inflation elevated at 13.9 per cent in September, Capmas data show. Higher inflation might prompt a policy reversal at the Central Bank of Egypt, which has resisted increasing interest rates.
But the Arab world's most populous nation has been able to weather the economic fallout from the regional conflict relatively well, helped by policies centred on exchange-rate flexibility, energy price adjustments and spending controls.
"The resilience of the updated macroeconomic policy framework has been tested by the sharp rise in oil prices and a confidence shock," Moody's said, referring to the decision by authorities to adjust domestic fuel and electricity prices, use expenditure contingencies and energy-conservation measures, and expand targeted social support rather than reversing energy price reforms.
"These measures limited the fiscal consequences of higher commodity prices and helped preserve macroeconomic stability," the agency added.
In July, Egypt was able to unlock about $1.8 billion in funding after clearing the latest review from its expanded economic programme with the International Monetary Fund.