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Egypt was downgraded to Caa1 from B3 by Moody’s on the back of its “worsening debt affordability trend” and the forex shortages amid rising external debt service payments through 2025. Whilst Egypt’s current account deficit improved to 1.2% of GDP at the end of fiscal 2023 from 3.5% in 2022, the drop in forex liquidity has seen it incur a large net foreign liability position of $26bn. This has seen a parallel black market exchange rate trading at ~EGP 40 vs the official rate of EGP30 per dollar, also acting as a barrier for the IMF to extend support. Also, high inflation and rising borrowing costs may lead to monetary policy constraint. On the positive side, Moody’s expects that the asset sale proceeds by Egypt may help restore its foreign currency liquidity buffer.
Egypt’s dollar bonds were trading stable with its 2027s through 2029s at 63-67 cents on the dollar.